Competitive Intelligence / Competitive Strategy, by Arik Johnson
by Arik Johnson

Intellectual Property:
Benchmarking and Managing Competitive Advantage for Long-Term Market Impact May Depend Less on Legal Protections and More on Evolving Cultural Opinions About Morality

"Real Winners" in business, companies that consistently create wealth and competitive advantage for their stakeholders, understand that survival and prosperity depend on mastering the relationship between Strategic Decision Making and Effective Operational Execution. Which means, pick the right markets, those that are growing and offer a real opportunity; and execute well in those markets to beat competitors to customers and keep customers loyal. To win in the long-term, requires an understanding of a firm's core competency. Here's a quick definition for you all since I see the concept misused many times daily. Remember, not all organizations even have a core competency.

The concept is best defined as that one, or maybe two, qualities about a firm that are competitively unique - which encourages product and service differentiation and cannot be copied by competitors), contribute a disproportionate share of customer-perceived value -- it's the reason why customer buy from you and not from competitors and forms the basis for entry into new markets -- if you can make your current product or service approach work, then find other markets that align with that quality which is unique and valuable to customers.

Firms that understand and leverage core competencies will win - it's that simple. The other side of the competitive dynamic here might be summed up in Key Success Factors, which are what every company in a market must do simply to remain in that market and sell anything at all. KSFs are nothing special - everybody has to do it simply to survive - and that's not why most entrepreneurs start businesses in the first place. It should also be noted that, when products and services mature in the natural order of things we call the Product Life Cycle, core competencies usually devolve into KSFs. In other words, the qualities that set a company and its products apart from the crowd early on become merely the minimum that every firm competing for marketshare must do just to sell into that market.

Enter "IP". Intellectual property, for the most part, represents competitive advantage for companies focused on core competencies., for example, has a patent on its "One-Click" technology and an very strong brand. This amount to qualities of its core competency - the real core competency for is the experience that it creates for customers. Incidentally, I believe the main goal for almost any e-commerce business, must be to make it a pleasure to do business with them. Why? Make it easy to use (One-Click), make people perceive that they're getting a deal (whether they are or not matters very little, in truth) and sell the products people want to buy to the people who are brand-aware.

Statistically, some 60 percent of the market valuation of the average industrial corporation is based on its intellectual property and, in knowledge intensive industries that figure runs a much higher 80 percent. While knowledge management provides a basis for beginning to capture, for itemized measurement of intellect free of aggregated impressions of company value if nothing else, a new segment of software tools has begun to evolve. Based on a relational database, and displayed visually in a "mapped topography" format, these tools can help describe relationships between patents and other IP for companies and help to better understand a company's intellectual assets relative to their value in the marketplace.

One such product is called IPAM (Intellectual Property Asset Management) from a firm called Aurigin Systems, Inc. of Mountain View, CA. Combined with Cartia's ThemeScape technology, the tool can form the basis for a company's attempts to understand the impact of IP on an industry's competitive dynamics. Within its database, IPAM contains English-language data from U.S. patents back to 1972, European patents back to 1978, and PCT data (Patent Cooperation Treaty, covering U.S., European and Japanese patents). English-language abstracts of Japanese patents become available soon and includes full text and sketches in searchable form. has managed to protect its technique for capturing customer attention. Whether One-Click is really "patent-able" is another matter entirely - most companies would ask whether that's really anything new. I would argue that, business processes like these are certainly patent-able, if only to prevent competitors from securing the same features. In effect, commoditizing the features of its business and turning it into a mere KSF. But, then again, there are firms, such as Intermind, who take broad liberty in defining their IP. According to a recent article in CIO Magazine, on patenting business processes, Jennifer Bresnahan points out that Intermind, an Internet software developer, "states its main purpose in securing a patent on the push model of content delivery is to collect revenue through a licensing program. The company considers any business that keeps a computerized file of information (meta data) about subscriber preferences in order to enable automatic delivery of information over a computer network to be infringing on the patent." WHAT? You must be kidding, right?

Dubious as some patents may be, IP still forms a solid basis for core competency in many ways - which, of course, translates to competitive advantage. It's true purpose is to protect firms' investments in innovation and R&D efforts from commoditization by low-cost producers. IP, is also a lot broader than patents. When considered in the context of competitive advantage, we must also includes trademarks, trade secrets and copyright protections. In our example, the company has a powerful brand, which is based entirely on its trademark-protected name.

Consider copyrights, the idea that implicitly prevents copying and redistribution of ideas and creative efforts in any form by other parties without the permission of the creator of that media. This article, for example, is implicitly copyrighted to its author (me), at least according to U.S. copyright protections. As the author, I'm not even required to attach the "All Rights Reserved" label to the bottom - it's simply implied that it's copyrighted to the author, unless declared elsewhere - for example, in the masthead of the publication.

Today, it's more important than ever for knowledge businesses, those whose product is media itself, to support the most rigorous copyright protections. The music industry, for example, is currently dealing with the uniquely Internet phenomenon of MP3. One might say, MP3 is the death of, if not the entire music industry, at least the record industry. Musicians will still make music, presumably, whether they're paid or not. In fact, many artists have embraced the idea of free distribution of their wares because it allows them to accomplish their true purpose more effectively - distribution of their ideas. But, record companies are businesses and must protect the investments they've made in promoting, packaging and distributing their products (the music created by their artists under contract) or risk eventual bankruptcy. When a product is pirated, it's free of cost - although not entirely so, because copyright owners can still attempt to prosecute the pirate - so, there are definite potential costs involved for the pirate.

Napster, perhaps the most important development in the MP3 saga, was created by a college student (where have we heard this before) who had trouble finding free MP3s on the Net that he wanted to listen to. So, he decided to write a program to make available for free, downloaded on the Net, that would allow each user of the software to also become a distributor of whatever music they currently had in their MP3 collection on their PC. The recording industry finds this the most aggressive competitive threat to their continued survival -- let alone their prosperity and ability to create wealth for its stakeholders! With Napster, users themselves are participating actively in music piracy itself, through passively tolerating MP3 downloads from their PC without intrusion into their normal computer use. Lawsuits are underway, but frankly, I think it's too late. It's like a big bootleg swap.

Napster sums up the power of ideas - they can serve to create or destroy markets wholesale by recruiting and involving blackmarketeers in profiting, in this case through simply requiring passive participation in piracy of copyright material in the form of music they already have, in order to access to the music they want. Until creative products are seen as more than just downloadable files that "want to be free", we'll continue to face the cultural tides that will ultimately undermine all legal matters when it comes to IP.

Intellectual property on a global basis, now a chief concern because of the Internet and the globalization of even small businesses, requires a different approach. IP revolves around laws, and laws are based on the legislative decisions of nation-states. There are a couple of hundred different nation-states in the world today, each with its own unique set of protections designed to prevent competition in certain markets, protect intellectual property owners and, sometimes, preserve the nation's competitiveness.

Lately, we've seen copyright become an issue with regard to software licenses, very definitely an intangible intellectual property that requires strong protections, where certain countries are less willing to protect American copyright holders. The efforts of the U.S. Federal Government and its foreign trade policies have helped ameliorate the problem as have the efforts domestically of the Business Software Alliance in catching software pirates (usually through tips from disgruntled employees that their former employers are using pirate warez), but it's still estimated that software hacks and piracy cost the U.S. software industry billions of dollars in lost revenue each year.

Clearly, the Internet and the evolution of the knowledge economy has brought about new challenges to intellectual property owners and have made it necessary, more now that ever before, for us to have strong protections. The "Golden Rule" might be the best and only enforceable legal protection available to us - as we all become producers of knowledge products, we have to consider the source of wealth creation -- derived in the salability of those knowledge products in the marketplace. When there is no longer a mechanical restriction on access to others' IP, it becomes a matter of ethics and morality rather than law, whether members of the knowledge culture will choose to comply with others wishes not to have their unique products copied without their permission. "Do unto others as you would have others do unto you," may be the only law we can count on.

Arik R. Johnson is Managing Director of the Competitive Intelligence (CI) outsourcing & support bureau Aurora WDC. Learn more about Arik at his firm's Web site