Using IP Strategy to Reduce the Strategic Uncertainty of Business Decisions

In my wanderings through the Internet, I recently came across a new-to-me management concept. This concept, which generally addresses the management of the risk of strategic decisions, directs C-level corporate decision-makers to embrace as a primary responsibility the management of uncertainty in order to enable the long-term success of their companies. The concept, developed by Michael Raynor of Deloitte Research, is briefly discussed in this article entitled "What is Corporate Strategy, Really" (available here: http://www.iveybusinessjournal.com/article.asp?intArticle_id=722) and in more detail in a book entitled The Strategy Paradox (more info here: http://www.amazon.com/Strategy-Paradox-committing-success-failure/dp/0385516223 ).

In the article, Mr. Raynor effectively asserts that traditional models of corporate strategy are flawed because they are inherently based on a supposed understanding of future events. Instead of embracing the fallacy that they are able to predict the future, business leaders should acknowledge and accept that a significant aspect of corporate decision making is based upon planning for unknowable events. Corporate strategy is therefore really about developing processes and contingencies for dealing with the unknown. As such, Mr. Raynor states that C-level corporate decision-makers must be willing to relinquish responsibility for short-term results and instead focus primarily on the management of strategic uncertainty. These corporate leaders must take primary responsibility for managing the uncertainties associated with the decisions made by business unit leaders so that the individual business units be able to embark on higher risk strategies, to allow these unit s to reap higher returns, without incurring the same level of risk that would otherwise exist.

As an IP Strategist and co-founder of IP Refinery, a leading provider of IP Strategy and Consulting services (more info here: www.ip-refinery.com ), I am always interested in illustrating ways that IP strategy can be applied into modern management concepts such as that proposed by Mr. Raynor. To this end, I am proposing that IP strategy actually comprises a fundamental aspect of the management of strategic uncertainty. Specifically, I strongly believe that when strategic efforts are applied to understanding IP, both inside and outside the company, IP moves from the realm of uncertainty to that of the knowable. And, when something is knowable, risk can be better managed and longer-reaching business decisions are possible with lower risk.

Unfortunately, IP strategy has traditionally not been a pillar of corporate strategy because, in my opinion, business leaders have assumed that IP is not a topic that could be known or understood. Thus, business leaders did not realize that IP concepts could be applied to strategic business decisions.

To illustrate, in the traditional model of corporate IP management, the in-house or outside patent attorney typically has little to no interaction with the business decision makers during the product development process. As such, the patent attorney normally becomes involved in addressing potential patent infringement concerns only when the business identifies the precise parameters of a product or service that is expected to go to market in the short-term. In this scenario, the patent attorney usually conducts a clearance search of relevant patents to see whether the proposed product or service will run afoul of third party patent rights. In this traditional model, the patent attorney serves as a gatekeeper to effectively allow or disallow the company's product from entering the marketplace. This is a go or no go decision based on concrete questions and, as such, this traditional patent attorney model does not provide for the management of uncertainty. Rather, this model allows only the "management" of certainty; that is, the question is whether the proposed product or service infringes a third party's patent rights. If the answer is "yes", the company will likely have to quickly modify or even abort its business plans and the business plans may end up in the loss column of the balance sheet. In this scenario, IP issues must be viewed as inherently uncertain and not manageable, much to the possible detrement of the company's business objectives.

However, a company that integrates IP strategy into its corporate strategy can significantly reduce the uncertainties involved in product or service introduction. In particular, corporate decision-makers who understand that ignorance of the company's own and other's IP increases the risks associated with product or service introductions will be able to reduce such risks by seeking to understand how IP affects the potential payback in that investment.

As one example of this concept, a company can reduce the risk of investment in new technology by understanding at an early stage the degree to which the company can own the resulting technology by way of broad patent rights (as opposed to just owning the product itself). Such knowledge at an early stage, such as in the innovation process itself, will provide the company with a better understanding of the how unique the product or service will be when introduced into the marketplace. If the technology cannot be wholly or substantially owned, the product is more likely to be knocked-off and will appear less differentiated, thus leading to more competition and possibly lower profit margins. This may ultimately be a satisfactory outcome when the business understands and desires competition and has built such competitive effects into its business and payback models. When the business expectations are directed toward sole ownership of a differentiated product, but the IP rights are not available, the payback expectations of the business will not be met. In short, by not seeking to understand the business uncertainties associated with IP, the business risks associated with IP are greatly increased.

This is not to say that a company that embraces the IP strategy as a fundamental part if its corporate strategy will be provided with a clear roadmap of how to manage its own IP and how to deal with the IP of others. Rather, a company that embarks on a disciplined program of strategic management of IP will be better able to handle the risks associated with IP. In Mr. Raynor's concept of the strategic management of uncertainty, a company that has a corporate strategy focused on stripping away as much of the unknown as possible has a higher probability of business success with a lower attendant risk profile. This requires adoption of a disciplined IP strategy to be an imperative for companies that hold Mr. Raynor's view of the necessity of managing strategic uncertainty.