Advances in digital technologies have led to the emergence of new business models that potentially challenge the status quo of many industries. The business models of ventures such as Netflix or Tencent have already created measurable changes for their industries based on their IP strategies. During this last module of the Master Class for IP Law and Management at CEIPI, we analyzed the relevant IP strategies which are applied in different industries to create successful business models like digital platforms.
These businesses have built a virtual marketplace that match two independent customer groups to enable commercial transactions. Nowadays, we see hundreds of such digital marketplace business models.
Within the recent years, the concept of the digital transformation reached a solid and high position in strategic discussions across industries: it’s about the survival of contemporary organizations. Digital transformation can be defined as the modification and adaptation of business models, resulting from the dynamic pace of technological progress and innovation that triggers changes in consumer and competitor behaviors. The driving forces of the transformation are several core technologies that started gathering the critical mass of usage, enormous investments in innovative enterprises, and rapid onboarding of technological tools by consumers and businesses.
The 6th module of the MIPLM-Program is about IP in business development for digital business models. The discussion started with the differentiation of business models and strategy. We developed a multidimensional view on the core concepts of business models: the architecture which gives answer to the two most important questions: who is the customer and what does the customer value? We used the most commonly framework, which was proposed by Osterwalder and Pigneur in the form of a “business model canvas” (BMC). The authors worked with 470 practitioners in 45 countries to gather all core elements of a business model in a single view. The resulting “canvas” contains the following components: key partners, key activities, key resources, value propositions, customer relationships, channels, customer segments, cost structures, and revenues.
The relative simplicity behind the BMC provides support for quick and efficient content documentation in the process of identifying crucial components of an organization. The BMC can be adopted to reflect the digital transformation of the business model of an organization. The digital transformation of new entities and relationships are driven by the application of information technology. The information technology can be seen as an enabler of changes to the paradigms of organizations.
Source: Kotarba, Marcin, Digital Transformation of Business Models, Foundations of Management, 10 (2018) p. 127
Intellectual Property (IP) offers a way to protect oneself in digitally transforming business eco-systems. If one succeeds in owning a legally enforceable exclusivity for a customer’s benefit in one’s own range of services, then premium prices can be enforced, and market positions can be shaped in digital business models. How to proceed is determined by the 360 degree IP strategy. In workshops we discussed these practice-oriented method for SMEs and tools to expand and secure the technical advantage over the competitors in the long term.
Comprehensive digitalization involves the potential for disruptive change to the business models of companies. Especially in recent years, companies such as Amazon, Uber and Mister Spex have demonstrated with their digital business model innovations how the rules of competition and industry structures can fundamentally change within a very short period of time. Digital business model innovations, however, are relevant not only for former start-ups and digital pioneers. They also offer new opportunities to established companies that will enable them to expand their business activity. For example, Daimler, the automobile manufacturer, founded car2go, a car-sharing service that allows users to book a reservation using a smartphone app and which today is the market leader in flexible car-sharing.
Source: Kotarba, Marcin, Digital Transformation of Business Models, Foundations of Management, 10 (2018) p. 128
The successful implementation of digital business models is primarily dependent on management decisions. In this context controllers, in their capacity as business partners of management, must adequately support decision-makers regarding digital innovation issues. When analyzing in depth the supportive role played by IP managers, it is important to distinguish between two key perspectives: first, IP management supports the process by acting as an enabler for the development of digital business model innovations, and second, the implementation of such business model innovations must be seen as a driver for making changes to IP management itself. This perspective as an enabler means that the IP manager provides support for the phases of innovation, specifically “brainstorming”, “assessing ideas”, “implementation” and “ongoing operations”. From an IP management perspective, brainstorming means, for example, determining how products and services can be priced in the context of a business model innovation, determining which markets to develop, or forecasting revenue growth. Assessing an idea involves determining what value the digital business model innovation will contribute to the company’s success. The focus of the implementation phase is on the design of a performance management system for IP, that is suitable for digital business models. As soon as the digital business model innovation has been established, the IP manager must then track the IP associated revenues and costs in a management profit reporting, that is appropriate for ongoing operations. The second perspective focuses on the digital transformation of IP management itself. A complete, transformative approach involves four fundamental areas of activity: processes and structures, methods and tools, roles and identity, and capabilities and cooperation.
What is open innovation?
The term open innovation means a situation where an organization does not just rely on their own internal knowledge, sources and resources (such as their own staff or R&D for example) for innovation (of products, services, business models, processes etc.), but also uses multiple external sources (such as customer feedback, published patents, competitors, external agencies, the public etc.) to drive innovation.
There are considered to be two types of open innovation:
- Inbound open innovation, and
- Outbound open innovation.
Inbound open innovation
Inbound innovation is about sourcing and acquiring expertise from outside the organization, and scanning the external environment for new information to identify, select, utilize and internalize ideas.
Outbound open innovation
Outbound innovation is the purposive commercialization and capture of internally developed ideas in the organization’s external environment. This might be through selective revealing of a product to journalists and reviewers or selectively selling the technology or service to customers with a view to getting feedback.
Cisco may be the most important OI pioneer. Its acquisition strategy allowed the company to grow quickly during the late 90’s. The goal of these acquisitions was to make hardware compatible with software in new technological products. This customer-driven innovation strategy helped Cisco overperform Bell Labs or Lucent by effectively translating big tech investments into business growth.
Another trailblazer is, undoubtedly, the pharmaceutical company Eli Lilly, spearheaded by its R&D strategy manager. The company reflected on how to make use of collective intelligence to improve the traditionally low innovation success rates in the pharmaceutical industry. Consequently, e.Lilly was born around the year 2000, the first open innovation platform to connect with global scientific knowledge. This platform is the origin of Innocentive, an Eli Lilly spin-off, whose goal was to allow other pharmaceutical and consumer goods companies to use this open model.
The third initiator is Procter & Gamble, the company that created in 2000 the so-called Connect & Develop, their new open innovation process. P&G’s ultimate goal was to continue growing by $2 billion annually while keeping a steady R&D investment. Procter managed to have up to 50% of its innovations coming from the outside and, consequently, its R&D productivity increased by 60%.
The so-called open innovation has emerged recently as a new innovation model. It encourages companies to use the existing external knowledge, rather than reinvent the wheel. This way, it is considered positive to establish links with other companies, universities, tech centers, and other knowledge sources.
Ideas are better connected to the market and meet real customer needs. Development solutions bring about better technological knowledge. This is what happens in organizations that use open models:
- The company collaborates with external knowledge generators. The main focus of the innovation department is to connect and integrate in-house teams with external knowledge sources.
- Internal innovation still exists but it focuses on the creation of knowledge that cannot be found outside, so long as it is marketable.
Today, open innovation is being adopted by many companies all over the world as a way of accelerating the innovation cycle, reducing risk and doing more with less. Models based on OI used a rocket-type process. Both the ideation and development stages accept contributions from outside the company. These contributions enrich the innovation activities and are a great asset.
These external contributions increase the quality of the ideas obtained through open innovation models, the technological development is faster and the risk is smaller due to its connection to the outer world. Applying an open model during the initial stage of a project has some advantages for the innovation team. Firstly, it is possible to better understand the real challenges of the project. Besides, it helps the team focus on the key points and evaluate more potential solutions.
Good luck for all participants of the 2022-2023 MIPLM:
If you want to gain in-depth knowledge about innovation and how to organize processes, read more about our Master program HERE.