At a glance

Companies which have succeeded in upgrading the IP function from a service agency operation to a critical enabler of IP-based competitive advantages have some things in common. This article elaborates on one of the most critical layers, namely establishing an effective IP operating model.

The operating model defines how companies organize and manage their IP resources to achieve their strategic ambitions. 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’. The model has four pillars critical for its successful operation:

  1. a joint backbone framework;
  2. an IP function mirroring the business;
  3. an IP function partaking in the strategic dialogue;
    and
  4. business-driven IP decision making.

This article first appeared in IAM issue 89, May/June 2018

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Introduction

The IP operating model is the key factor that separates the best from the rest as regards using IP to establish and leverage competitive advantages. Four pillars are key differentiators.

What is the role of the IP function? Most IP professionals would agree that successful IP management requires two critical capabilities; 1) to create the right IP portfolio and 2) 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 IP around the company’s most promising inventions. How to make sure the IP portfolio is purposefully used in line with the company’s business priorities is instead often 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 IP reside fully within the borders of the IP function. In addition, the IP function is by tradition organized as a support function, with a cost center status. Although staffed with some of the most well-educated and highly specialized personnel in the company, IP functions also often find themselves in an isolated, peripheral position with low executive management attention.

Over the past several years, however, many CEOs, CTOs, CDOs, GCs, business unit heads, and other function leaders have been raising their expectations. A steady stream of high-profile patent cases has attracted attention and made it clear that the world’s leading innovators are increasingly using IP as a means of building competitive advantages. Similarly, the success of some companies in generating substantial licensing revenues from IP has attracted a lot of interest.

However, it is the potential disruption caused by digitalization – 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 IP. This is true across most industries, and even players who until recently were unknown names in the IP world are now quickly establishing themselves to reap the benefits enabled by the new technology environment.

This article will argue that the main factor distinguishing the world’s leading IP companies from the rest is their IP operating models — how they organize and manage their IP resources to achieve their strategic ambitions. It will describe how four pillars transform the IP function from a support function to a strategic business partner, building the bridge between IP strategy and execution.

The strategic business partner model

Companies which have succeeded in upgrading the 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;
  • Organizational layer: They have realigned their IP operating model to effectively execute the IP strategy and to deliver value in line with its critical priorities; and
  • Resource layer: They have allocated 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 its IP strategy with the priorities of the core operations of the company, 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 it intends to do and what it delivers are almost always the result of an operating model that isn’t 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 the company lacks an IP strategy.

Designing an effective IP operating model is about a lot more than defining the lines and boxes of an organization chart. An effective operating model defines accountabilities. It specifies how critical IP processes should be conducted, and the responsibilities and authorities for each organizational 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 be able to adapt along with changes in other parts of the company, and changes to the market and business ecosystem outside.

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 behaviors that bring the company’s IP strategy to life, and encompass attractive career paths for the staff, which ultimately will make all the difference.

Although no IP operating model should look the same, many of the world’s IP leaders use some version of the ‘strategic business partner model’. This model is 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:

  1. A joint backbone framework;
  2. An IP function mirroring the business;
  3. An IP function partaking in the strategic dialogue; and
  4. Business-driven IP decision-making.

A joint backbone framework

To organize themselves, all companies use different frameworks to subdivide the different parts of its 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. Research and Development may have a framework for describing relevant technology or competence areas.

The IP function typically has its own framework for subdividing its IP portfolio into sub-portfolios or clusters, and distributing responsibility among team members. Often, this framework 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 they see fit. This is often done without any general quality norms or harmonization principles.

How the IP portfolio framework is designed has however major implications on 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 shares by offering products with certain unique features, you want to have an IP portfolio structure perfectly aligned with the product system and the associated development organization. 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 use of the portfolio.

If your company is entering a new market and need to in-source a heavily patented subsystem, there may be an opportunity to prepare the move by building a patent-based bargaining position to lower the costs for the subsystem and 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 very helpful in 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 optimize these compromises in light of their IP strategy and pegged their IP portfolio structure to one or several frameworks used by the core functions of the company, thereby ensuring compatibility and a future-proof structure.

Exhibit 1

Pillar 1: A joint backbone framework between the IP function and core operations

Source: Konsert Strategy & IP

“Thyssenkrupp’s strategic IP focus is set annually by assessing our relative IP strength on technology level against the strategic priorities of our businesses. 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.”, says Dr. Stephan Wolke, CEO, ThyssenKrupp Intellectual Property GmbH.

An IP function mirroring the business

IP professionals are highly specialized and educated people, whose work is influenced by strong norms and routines built up for most administrative and legal processes. Around these processes there is also a large professional services industry built up, which is constantly exchanging professionals with operating companies. Combined with their support function design, this means that IP functions often are organized 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 be perfectly capable of giving excellent advice on incoming cases, can ensure that legal and regulatory requirements are met, and can put out the inevitable fires that erupt when there is a conflict or urgency. They are however typically disconnected from the business and their staff is acting on case-by-case basis as individuals, rather than systematically in teams. This also makes them reactive players acting one-directionally on prioritizations 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 organizational 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 organizational design in the strategic business partner model is to focus business accountability for IP creation, management and use to as few managers as possible, while ensuring that these managers have appropriate counterparts in the business, have balanced authority, and have 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.

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 decreasing activities that add little value, rather than paying equal attention to all incoming requests. They work closely with the businesses and core operations of the company in a proactive and strategic role, and their teams encompass a high level and diverse range of instrumental and soft skills, including not least leadership. They have also recognized that the types of people and professional development needed are different and more diverse than in a traditional IP function.

Exhibit 2

Pillar 2: An IP function mirroring the business

Source: Konsert Strategy & IP

One technology-heavy consumer goods company had its IP function organized in one patent and design-rights department, one trademark department and one IP legal department, spread across the globe with limited harmonization across the different sites. 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 disproportional amount of time on FTO searches requested by R&D. It had a very limited interaction with the business and the flow of inventions disclosures was driven by the inventors supported by part-time coordinators, set up as an interface between the inventors and the patent attorneys. IP decision-making was done in site-specific patent boards with strong technology bias.

A new member of the board of management, who’s responsibility included product development, R&D, and IP, wanted more value from the company’s IP investments and initiated a change program. The IP portfolio framework was harmonized with the business. Global IP directors were installed with senior counterparts in each of the business units. Patent, design, and trademark attorneys along with legal counsels and intelligence staff were organized into global teams based on the new portfolio framework and under the leadership of the IP directors. The resources were consolidated, and way-of-working was harmonized across sites. Business accountability became clear and the organization could take its starting-point in IP use and business pull instead of inventor-driven IP creation.

Exhibit 3

Technology-heavy consumer goods company before transformation

Source: Konsert Strategy & IP

Exhibit 4

Technology-heavy consumer goods company after transformation

Source: Konsert Strategy & IP

An IP function partaking in the strategic dialogue

Fundamental to IP management is that it entails both creating the right IP portfolio and ensuring that the IP portfolio is used. What the right IP portfolio is, is strictly a derivative of what is needed to create as much business value as possible for the company. This may e.g. be to build up an exclusivity position around relevant product features, but it may be equally important to create or acquire any IP that can help you offset a potential IP threat from an aggressive competitor. In addition, foresight on how others may use their IP and opportunities for building a stronger IP leverage for your own company may be critical input to the business strategy. These things require IP’s participation in your company’s strategic dialogue.

Despite this, the expectations on many IP functions is to primarily focus on creating patents from inventions pushed by the inventor community. 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.

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 the IP portfolio lacks business value potential.

Even when the business relevance of the portfolio is higher, such a support function setup still fails to directly address other IP value models than exclusivity for own products. It also fails to provide the crucial input IP can offer to the strategic choices made by the core operations of the company. The separation from the strategic dialogue also typically has 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 have made IP part of the strategic dialogue and proactively involved the IP function in the business planning process, while providing IP-based foresight to all stakeholders. Even a business-mirrored organization will otherwise 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.

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 optimize these compromises in light of their IP strategy and pegged their IP portfolio structure to one or several frameworks used by the core functions of the company, thereby ensuring compatibility and a future-proof structure.

Exhibit 5

Pillar 3: An IP function partaking in the strategic dialogue

Source: Konsert Strategy & IP

“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. The bidirectional dialogue with the businesses and core operations of the company is a critical component in our way-of-working.”, says Dr. Jürgen Koch, Senior Vice President, Head of Corporate Intellectual Property, Robert Bosch GmbH.

Business-driven IP decision-making

Decisions determine performance. To outperform competitors a company must make better and faster decisions than they do, and make sure they are executed more effectively. This is generally true for all parts of the company. Effective decision-making and execution are however arguably a more challenging issue for IP than for most 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 organization and your stakeholder interfaces are spread out over regions, functions, and business units. This creates unique challenges that most fail to overcome, which directly affects a company’s ability to run a business-driven IP operation. If decision-making roles and responsibilities are not clear, even a business-mirrored organization 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 center logic along with the bias towards IP creation (rather than IP use), make many decide on the wrong things. Decisions will only be good decisions if they are enacting actions and commitments towards value creation.

A Vice President in charge of a 2BEUR product category at a consumer goods company was in charge of the associated IP portfolio and was formally its decision maker. Every month he got several invention disclosures on his desk and was asked whether to file a patent or not. “The lengthy technical documents took long to go through and were hard to understand. 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 organization 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’ve 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. In the process they have assigned accountability and distributed it across the IP function, other key functions, and hierarchical levels to ensure desired impact. To ensure effectiveness and efficiency they also follow up on metrices and KPIs within and outside of the IP function, and on both sides of business-driven IP management – IP creation and IP use.

Exhibit 6

Pillar 4: Formalized and business-driven IP decision-making

Source: Konsert Strategy & IP

”The core activities of Philips Intellectual Property & Standards are organized under a set of business processes geared towards value creation. To enable efficient execution of these processes our organizational model formalizes interfaces between IP & Standards 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.”, says Maaike van Velzen, Head of IP Portfolio Management, Philips

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 IP 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 setup gradually reinforces an ever-higher degree of alignment between their corporate functions, business units and IP functions, and strengthens both responsibility and authority for business value creation. It allows their IP functions to take a strategic role and as such to undertake the difficult step of focusing their efforts on high value activities and on building differentiating capabilities, while deprioritizing less important requests. For those who have taken this all the way it has allowed them to build IP operations with massive contributions to the bottom line.

Action plan

A company who 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:

  • 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 managers have appropriate counterparts in the business, have balanced authority, and have a cross-disciplinary team able to deliver on its responsibilities;
  • Make the IP function part of the strategic dialogue by formalizing connections with decision- makers and forums representing e.g. 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 its 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; and
  • Install metrices and KPIs within and outside of the IP function, and on both sides of business-driven IP management (IP creation and IP use), to ensure effectiveness and efficiency.

This article first appeared in IAM issue 89, published by Globe Business Media Group - IP Division. To view the issue in full, please go to www.IAM-media.com