Lecture 3 organisational knowledge

1

Managing intellectual property

Chapters 5 and 6

http://www.ausinnovation.org/articles/ted-sixth-sense-technology.html

Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

2

 http://www.ausinnovation.org/articles/creating
-an-innovation-mindset.html

 http://www.ausinnovation.org/articles/ted-sixth-
sense-technology.html


3

Learning objectives

 Understand the role of intellectual property in
appropriating gains from innovation
 Understand different forms of protection available
for intellectual assets
 Appreciate the limitations of the patent system


4

Profiting from innovation

 For an innovation to be profitable:
 The technology underlying the product must work
 The product must create value for the
customer/consumer
 The innovator must be able to appropriate (capture)
enough of the value to make a profit
 Value can be lost to competitors, buyers, suppliers, etc.

(Winter, 2000)


5

Mechanisms of appropriability

 Secrecy
 Trade secrets
 Legally protected intellectual assets are termed
intellectual property (IP)
 Control of complementary assets
 Other assets such as distribution, service capability,
customer/supplier relationships, complementary
products
 Lead time
 First-mover advantage
(Winter, 2000)


6

Trade secrets

 Often applied to ways of working, price costings
or business strategies
 Also applied to products (e.g. Coca Cola)
 Legal definition unclear
 Maintain secrecy during product development
 Risk of information leakage?
 Inhibits internal knowledge transfer?
 Limits inter-company collaboration?
 Difficult to maintain once marketed
 Reverse-engineering by competitors?
 No protection against independent invention by others

7

Trade secrets

No sign of the recipe on the can!
“The secret to one of the world's most famous brands lies deep in a bank
vault somewhere in Georgia, US. Its exact location is reportedly known
only to between two and four Coca-Cola executives.
It is rumoured that measures are employed to protect the chosen
few – the executives never travel together, and must approve a
successor should one of them die.
Outlets which make the drink are simply supplied with syrups
and other ingredients from Coca-Cola – but not the original recipe.
People have revealed what they claim to be the official recipe
after analysing the drink, but Coca-Cola remains tight-lipped.”

Source: Tom Geoghegan, „What we still don‟t know‟, bbc.co.uk/1/hi/business 2 nd June 2005


8

Types of intellectual property

Intellectual property Key features
Patent Offers a 20-year monopoly; for new products or
manufacturing processes, or improvements to
an existing product or process, which was not
previously known
Copyright Provides exclusive rights to creative individuals
for the protection of their literary or artistic
productions
Registered design Registration of the outward appearance of an
article; provides exclusive rights for up to 25
years
Registered trademark A distinctive name, mark or symbol identified
with a company‟s products


9

Copyright ©

 Applies to:
 Original literary, dramatic, musical and artistic works
(70 years a.d.)
 Sound recordings, films, broadcasts and cable
programmes (50 years post publication)
 Typographical arrangements or layout of a published
edition (50 years post publication)
 Automatic protection
 Cannot copyright ideas
 Must be in tangible form (e.g. written)
 Copyright applies to the presentation of the idea.


10

Copyright

"Dan Brown copied from The Holy Blood and the Holy Grail and
therefore the publication of the result by the defendant is in
infringement of the copyright of my client in the United Kingdom."

"The authors' historical conjecture has spawned many other books
that developed aspects of this conjecture in a variety of directions.
But none has lifted the central theme of the book."

Source: Lawyers for Baigent & Leigh, February 2006


11

Registered design

 Intended for designs with aesthetic appeal
 Toys, electrical appliances, packaging, etc.
 New designs:
 Not published in the UK
 Materially different appeal to the eye.
 Outward appearance of an article
 Actual shape, configuration, pattern, etc.
 Maximum of 25 years
 Exclusive rights for initial five years, renewable for
up to five five-year periods
 Similar in operation to the patent system

12

Registered design


13

Registered trademark ®

 Distinctive names, marks and symbols identifying
a company‟s products
 Must be:
 Distinctive in itself
 Non-deceptive
 Not confusing.
 International registration
 Many brands are registered trademarks
 Licensing


14

Trademarks

Orange colour clash set for court

A row over the colour orange could hit the courts after mobile phone giant
Orange launched action against a new mobile venture from Easyjet's founder.
Orange said it was starting proceedings against the Easymobile service for
trademark infringement.
Easymobile uses Easygroup's orange branding. Founder Stelios Haji-Ioannou
has pledged to contest the action.
The move comes after the two sides failed to come to an agreement after six
months of talks.
Orange claims the new low-cost mobile service has infringed its rights
regarding the use of the colour orange and could confuse
customers – known as "passing off".

Source: bbc.co.uk 20th February 2005


15

Patents

 20-year monopoly to make, use or sell
 Legal right to prevent others using the invention
 Public disclosure of details of the invention
 Novelty
 Must not be part of „state of the art‟
 Words, publications, anticipation
 Inventive step
 Not obvious to a person skilled in the art
 Industrial application
 Machine, product, process


16

Limitations of patents

 Annual fees required
 National patent protection
 Patent harmonisation
 European Patent Convention (EPC)
 Paris Convention – 114 countries
 First-to-file (EU) vs first-to-invent (US)
 Legal costs of defence
 Limited effectiveness in some industries
 Patent life vs „imitation lag‟
 Inventing around patents


17

Limitations of patents

Creative wins MP3 player patent

One of Apple's main rivals, Creative Technology, has
been awarded a patent in the US for the interface
used on many digital music players.

"The first portable media player based upon the user interface covered in our
Zen Patent was our Nomad Jukebox MP3 player," said Creative CEO Sim Wong
Hoo.

"The Apple iPod was only announced in October 2001, 13 months after we had
been shipping the Nomad Jukebox based upon the user interface covered by our
Zen Patent."

In its press release, Creative said Apple had filed for a patent for a user interface
in a multimedia player in late 2002, but its application had been recently rejected.

Source: bbc.co.uk 30th August 2005


18

Use of patents in innovation

 Patent information is available to the public
 Is a valuable source of technological knowledge
 A good way of finding out how problems have
been resolved in the past
 A good way of linking current work to previous
inventions and discoveries
 Find out what competitors are doing
 Can be a source of ideas and directions to go
with R&D.


19

Do patents foster or hinder innovation?

 In case of HIV research there are over 1000
patents files , each one building on the other.
 Can deny follow-on innovators access to
technologies
 Can present barrier to entry into a field
 The expense required to avoid patent
infringement can de a deterrent
 Some firms issue questionable patents


20

Trademarks & Brands

 Differentiates company‟s products
 Associated with business image, goodwill, and
reputation
 Hoover for vacuum cleaners; Nestle for coffee
 Trademarks (law) and brands (marketing) are
closely linked
 Both facilitate identity and origin
 Brands help buyers identify specific products and
help them in the buying process.


21

Brand extentions

 Brands symbolise quality and image that can be
transferred to other products
 Unilever extended the Timotei shampoo name to
skin-care products. Benefits of brand recognition.

 Licensing of trademarks is growing rapidly eg
AFL, many firms license their trademark to
clothing manufacturers


22

Chapter 6

Managing organisational knowledge


23

Managing organisational knowledge

1. Introduction: The importance of technology
2. Technology as an asset
3. Resource-based view of the firm
4. Tacit knowledge
5. Competencies
6. Core competencies
7. Turning technology into profits
8. Technology life cycles & S-curves
9. The degree of innovativeness


24

The importance of technology

• The battle of Trafalgar 1805
• Nelson defeated the French and Spanish fleets in
the battle of Trafalgar
• Nelson‟s ship, HMS Victory, stands in a drydock in
Portsmouth
• Nelson‟s fleet, while composed of fewer vessels
achieved victory
• Technology advantage


25

Technology as an asset

Product technology advantages
• Pfizer‟s Sildenfil – aka Viagra:
The fastest selling human drug
• Gore Associates‟ Gore-Tex:
the versatile polymer polytetrafluoroethylene (PTFE)
• Dyson‟s vacuum cleaner:
Revolutionised a very stable mature industry


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Technology as an asset (Continued)

Process technologies
• Enterprise Resource Planning (ERP) business software
• Virtually all large firms have installed it
• SAP, Oracle, Baan and PeopleSoft
• SAP has over 20,000 products installed worldwide
and Oracle has installed databases in nearly every
one of the world‟s top 500 companies
• Moreover, it has changed the way they work
(Gartner, 2002).


27

The resource-based view of the firm (RBV)

The resource based view of the firm (RBV) is an
influential theoretical framework for understanding how
competitive advantage within firms is achieved and how
that might be sustained over time.
Penrose (1959)
Wernerfelt (1984)
Prahalad and Hamel (1990)
Barney (1991)
Nelson (1991)
Teece, Pisano and Schuen (1997)
Winter (2003)
Ray, Barney & Muhanna (2004).

28

The resource-based view of the
firm (RBV) (Continued)
RBV focuses on the internal activities of the firm
and so complements the traditional emphasis on structure
and positioning.
It assumes:
• that firms can be conceptualised as bundles of resources;
• that these resources are variously and differently distributed;
• resource differences persist over time.
Certain resources that are:
Valuable
Rare
Inimitable
Non-substitutable
VRIN attributes

29

Prahalad and Hamel

 In 1990 Prahalad and Hamel changed the
direction of strategic thinking when they
published their now classic article

 “The Core Competency of the Corporation”


30

Prahalad and Hamel
Recommended that the organisation

 Outsource all but its key functions to keep costs
down
 Figure out its real core competencies
 Forget about SBUs and concentrate on
competencies that are shared across the total
corporation
 Focus on core products developed from that
competency.


31

Core Competency: Examples

 Sony's core competency was miniaturisation and this
leads to core mobile products such as Walkman and
Discman.

 Honda's core competency is engine expertise
leading to core products (engines) in fields as
diverse as cars to motorcycles to outboard motors on
boats to water scooters to generators.

 3M's core competency is practical innovation leading
to products such as Post-It or Scotch tape


32

The Resource Based View (RBV)

Since Prahalad and Hamel‟s article was published, many
researchers and theorists have developed the concept by:
 elaborating on its meaning and significance

 developing techniques for identifying and

measuring core competencies in corporations


33

Perspectives on Competitive
Strategy
1980s View 1990s View

External Unit of Industry Market Segment
Analysis
Customer-Firm Win-lose battle among Win-win and creation of
Relationship rivals and between superior customer value
firms and customers
Key Strategy Industry-Firm Fit Organisational learning
Challenge to develop key resources
and competencies
Management’s Industry Concentration Delivering Superior Value
Main Task and Market Power to the Customer

Main Profit Industry concentration Delivering Superior
Influencers and market-power Customer Value
Ideal Outcome Monopoly Position Superior Financial
Performance
Achieved by Barriers to Entry Distinctive Competencies
causally ambiguous
resources
Source: O’Keeffe, Mavondo and New Product Development, 4c. 2000 Education Limited 2008
Paul Trott, Innovation Management and
Schroder, Edition, © Pearson
th

34

RBV and Core Competencies

 A key feature of the RBV is the search for core
competencies or distinctive competencies within a
corporation

 Competition is as much a race for competency mastery
as it is a race for market dominance and market share

 Core competencies represent a fundamental departure
from the positioning school in that they are:
 Internal

 Controllable


35

RBV Framework


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The Resource Based View (RBV)
Market Based Resources include:

Culture (e.g. market orientation, research
orientation, culture of innovation)

 Assets (e.g.brands, Mktg IS, databases, etc)

Capabilities (e.g. research, relationships, know-how
etc)

The key is to transform these resources into core
competencies which form the foundation of superior
competitive position.


37

The Core Competency
Concept; Some Definitions


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Core Competencies Vs Strengths
 Understanding core competencies makes
intuitive sense

However, the real significance of the concept
can be difficult to grasp

 The following series of slides present
different perspectives on the concept and its
relevance for contemporary business practice


39

Core Competencies: Some Definitions


40

What the theorists say

“Few companies are likely to build world leadership in
more than five or six fundamental core competencies.”

“Core competence does not diminish with use. Unlike
physical assets, which do deteriorate over time,
competencies are enhanced as they are applied and
shared. But, competencies still need to be nurtured
and protected.” p. 84

C.K. Prahalad and Gary Hamel, 1990


41

What the practitioners say


42


“ Firms can embody core competencies or capabilities
in many different ways, ranging from logistics, to
distribution, to trade partner relationships to branding.
Given that resources are usually limited, firms have at
the most five or six core competencies.”

“Whatever they are, a set of core competencies needs
to create a uniquely bundled system.”

Nancy Tennant Snyder, Corporate VP of Core Competencies and
Leadership Development, Whirlpool Corporation, quoted in Snyder
and Tennant, 2003, p. 7


43


“Core competencies is an issue that seems to make a lot of
conceptual sense. But true core competencies are hard to define
precisely … Core competencies are exaggerated by some
managers and underestimated by others. Some think everything
they do is a core competency. Other companies really don't
understand what particular competencies make them successful
in a marketplace. The reason is that competencies are sometimes
so ingrained they're unapparent.”

Dan Simpson, Director of Strategy and Planning, The Clorox
Company


44

The Identification Problem
 A key task for management is to identify which skills
and assets should be nurtured as core competencies

 Prahalad and Hamel (1990) point out that sustaining
core competencies is critical to creating sustainable
value

 Yet many companies have reported real difficulties
identifying which competencies are core


45

Core Competencies Vs Strengths
Identifying core competencies is not just a
matter of taking an inventory of skills and assets

A company can have many strengths but few
will qualify as core competencies.

So how can companies identify their core
competencies?


46

Core Competencies
At least three tests can be applied
[to internal strengths] to identify core
competencies:

1. Provides access to a wide
variety of markets
2. Significant contribution to
perceived customer benefits
3. Difficult for competitors to
imitate

(Prahalad & Hamel, 1990, pp 83-83)


47

Access to Broad Markets
 A core competency must exist in more than one or
two businesses

 For example, if innovation is a core competency, then
it must permeate all products and businesses for it to
be considered a core competency

If a competency exists in only one department or one
product, then it is not a core competency
(3M case study)


48

Access to Broad Markets
(Example)
Black & Decker‟s core competency in
producing 200- 600 watt motors
enabled it to enter a variety of markets

Home Workshop Market
Drills, saws, sanders, polishers and
rotary tools
Domestic Cleaning & Maintenance
Market
Dust busters

 Kitchen Appliance Market
Blenders, toasters, can openers etc

49

Significant Contribution to Customer Benefits

A core competency must make a significant
contribution to perceived customer benefits

If customers do not see the value from your
competencies, then it cannot be considered core


50

Significant Contribution to Customer Benefits
(Example)

 For example, The Coca Cola company invested
millions in developing an improved water
purification system with significant cost savings

Customers could not taste the difference. While
the purification system may have been something
CC did very well, it was not a core competency


51

Difficult for Competitors to Imitate
Core competencies should be:

 “Competitively unique”

Something that competitors wish they had, but
would find difficult to acquire in the short term

 Able to confer significant differentiation

A competence which is central to business activities,
but which is not exceptional, should not be
considered a core competency.


52

Difficult to Imitate (Example)

Dell Computers has several core competencies
which provide significant differentiation in the PC
market:

 Online customisation of computer built
 Minimisation of capital in the production
process
 Manufacturing and distribution quality


53

A Framework for Identifying
Core Competencies
Task Complexity

High Low
High I II can be outsourced
Genuine Core Supply Chain
Competencies Management

Low III easy to imitate IV easy to outsource
Accountancy Facilities
Legal Services Security
Support Personnel Catering

Task Value

54

Distinctions

“It is essential to make the distinction between
core competencies, core products and end
products because global competition is played out
by different rules and for different stakes at each
level.”

Prahalad and Hamel, 1990, p. 85


55

Core Competencies

 Core competencies are skills or
assets

Examples
 Coca Cola – brand equity (asset)

 3M - Innovation (skill)

 Sony – Miniaturisation (capability)


56

Core Products

Core products are the physical embodiment of
one or more core competencies
 Core products are the components or sub-

assemblies that contribute value to end products

Examples
IBM‟s microprocessor and operating systems

 3M‟s adhesives, abrasives and polymers


57

End Products
End products are the finished articles
which are sold to end users or to
distributors

Examples

Honda‟s motors


58

The Tree Analogy

The corporation, like a large tree, grows from its
roots. Core products are nourished by
competencies and engender business units, whose
fruits are end products.
(Prahalad & Hamel, 1990: 81)


59

The Tree Analogy

End Products

Core Products

Competency 1 Competency 3

Competency 2

Based on Prahalad & Hamel, 1990, p. 81

60

Conclusions
 The core competency concept provides an
alternative perspective on the issue of
“corporate strengths”

 Some theorists have seen this as contributing to
the “fall of strategic planning” and the “demise of
SWOT analysis.” (See for example Mintzberg)

 However, more enlightened theorists view the
core competency concept as a more robust
method of evaluating corporate strengths


61

Conclusions
The Resource Based View:
 takes account of both customer and competitors in
external analysis
 less likely to conduct analysis at industry level
and more likely to consider market served
 includes a mediating element between generic
strategy and positional advantage (Positioning
Theme)
 Is compatible with positioning school (because
industry effects account for 10% of profitability
while corporate effects account for 50%)


62

Firm‟s capabilities

Intellectual Firm‟s capabilities:
assets
Design
Purchasing
Physical
Manufacturing
assets
Finance
Cultural Distribution
assets Customer relationships


63

Tacit knowledge

We often know more than we can tell . . .

Have you ever tried explaining to someone in words how
to tie a shoelace?


64

Core competencies
End
products

Business End
End units Business products
products
units

Core
products

Core competencies

Source: Reprinted by permission of Harvard Business Review. Adapted from „The Core Competence of the Corporation‟, by G. Hamel and C.K. Prahalad, (1990).
Copyright © 1990 by the Harvard Business School Corporation; all rights reserved


65

Turning technology into profits

Low Negligible Long-term
profits profits
Imitability

No Short-term
High
profits profits

Non-core Core

Extent of coreness


66

Technology development effort required?

Technology life cycles and
S-curves: Supercomputer

Communication bottlenecks

Multi-processor
Rate of Speed of light
computer
Technological
progress
Single-processor
computer

Amount of effort


67

Knowledge embedded in relationships

shared knowledge
embedded in relationships

knowledge

individual


68

Internal knowledge accumulation process

Informal and formal discussions
amongst colleagues with
prior knowledge, mutual respect
and credibility, and an awareness of
the needs of the business

4 The spiral is
3 1 continuous

Accumulation and retention
of additional knowledge 2 Generates new associations
by the organisation and linkages for the business
that have not been made before

The rejection of ideas and associations
by the organisation does not cause a loss
of knowledge. The knowledge is retained
within the business for other and later uses
as a form of organisational memory.


69

The degree of innovativeness

• Leader/offensive
• Fast follower/defensive
• Cost minimisation/imitative
• Market segmentation specialist/traditional


70

Product Pioneer(s) Imitator/later entrant(s)
35mm Cameras Leica (1925) Canon (1934)
Contrax (1932) Nikon (1946)
Exacta (1936) Nikon SLR (1959)
CAT Scanners EMI (1972) Pfizer (1974)
(Computer Axial Technicare (1975)
Tomography) GE (1976)
Johnson and Johnson (1978)
Ballpoint pens Reynolds (1945) Parker “Jotter” (1954)
Eversharp (1946) Bic (1960)
MRI (Magnetic Fonar (1978) Johnson & Johnson‟s Technicare (1981)
Resonance Imaging) General Electric (1982)
Personal Computers MITS Altair 8800 (1975) IBM-PC (1981)
Apple II (1977) Compaq (1982)
Radio Shack (1977) Dell (1984)
Gateway (1985)
VCRs Ampex (1956) JVC-VHS (1976)
CBS-EVR (1970) RCA Selectra Vision (1977) made by
Sony U-matic (1971) Matsushita
Catrivision (1972)
Sony Betamax (1975)
Word-processing Wordstar (1979) WordPerfect (1982)
software Microsoft Word (1983)

Throughout the twentieth century „late entrants‟ have been surpassing
pioneers

71

Habits of Innovative Companies
1. Deep understanding of the customer and
market needs:
 Engage with customers;
 Understand industry trends and competitive
environment;
 Big picture perspectives

2. A “Culture” of innovation:
 Vision; leadership; Executive support;
 Openness to new ideas; supportive/encouraging
of innovation; commercial imperative to innovate;
 Flexibility.


72

Habits 2
3. An Open Innovation model: Open collaboration
model and having global partnerships

4. An appropriate funding model for innovation
activities:
 Willingness to invest in R&D activities;
 Balanced investment in future versus current needs.

5. Ability to execute:
 Commitment of resources dedicated to innovation;
 Continuous development/improvement processes;
 Benchmarking;
 Clear goals/deadlines/strategy;
 Best practice evolves over time (dynamic); Flexible and
quick to move.

73

6. Human intellect/creativity:
 Development of skills;
 Knowledge base;
 Talented Educated individuals;
 Willingness to learn/change.

7. Management of Intellectual Property:
Ability to manage/protect IP that is generated
through the innovation process in a practical
manner.


74

Some definitions of innovation
 "Innovation . . . is generally understood as the
successful introduction of a new thing or method
. . . Innovation is the embodiment, combination,
or synthesis of knowledge in original, relevant,
valued new products, processes, or services.
Luecke and Katz (2003)
 Innovation typically involves creativity, but is not
identical to it:
 innovation involves acting on the creative ideas
to make some specific and tangible difference in
the domain in which the innovation occurs.


75

Definitions 2
 "All innovation begins with creative ideas. It is the
successful implementation of creative ideas
within an organization.
 Creativity by individuals and teams is a starting
point for innovation; the first is necessary but not
sufficient condition for the second".
 For innovation to occur, something more than the
generation of a creative idea or insight is
required: the insight must be put into action to
make a genuine difference, resulting for example
in new or altered business processes within the
organization, or changes in the products and
services provided.
 activity.

76

Definitions 3

 Creative insights leading to significant
organizational improvements in terms of
improved or new business products, services, or
internal processes.
 Creativity is typically seen as the basis for
innovation, and innovation as the successful
implementation of creative ideas within an
organization.


Lecture 3 organisational knowledge

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