"The Invisible Edge," New Book by IP Strategy Experts, Provides a Lens to Navigate the New IP Economy, as Well as Insights Into Companies Who've Excelled by Leveraging IP as Their Most Important Asset

BOSTON, MA--(Marketwire - March 9, 2009) - In a world in which traditional sources of business advantages like scale and customer knowledge can be easily replicated, Intellectual Property (IP) stands as the main source of sustainable competitive advantage. But because IP is hard to see and generally ignored by established business education and management training, leaders tend to focus chiefly on tangibles like finance and operations, paying too little attention to their companies' greatest asset, IP.

However, managers who learn to discover and develop the IP embedded in their value chains, and to put that IP at the center of strategy, will realize more opportunities for profit and increase their chances of dominating their markets.

Those are views advanced in The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property (Portfolio, March 2009), a new book by veteran strategists and former Boston Consulting Group (BCG) practice leaders Mark Blaxill and Ralph Eckardt.

They argue the innovations that a company owns and controls are what will generate extraordinary profits over the long term -- and that IP is what allows the company to possess, protect and defend these innovations, which differentiate processes, products and services and enable the company to charge premiums for them. The authors also point out that IP reserves can be a country's -- particularly the U.S.'s -- greatest strategic resource, and legislators must take care not to squander it inadvertently with misguided decisions and reforms.

"Best Practice" and "Well-Run" no Longer Translate into Smart Strategy or Profitability

Companies that keep up with industry "best practices" -- and are considered the "best-run" companies -- often struggle to eke out profits. Meanwhile, companies that understand, develop and manage IP well can be extremely profitable and stay on growth trajectories.

"Even though companies and the playing field have been restructured by digital technology and globalization, businesses' decision-making tools date back to the early 20th Century and the Industrial Revolution. We're often not seeing and working with the variables that really matter: The strategic awakening that we believe is needed depends on a new analysis of the critical importance of IP," said Mr. Blaxill.

"It's our contention that, increasingly, all strategy is becoming IP strategy. We've set out to offer a new lens on business -- and even national economic competitiveness -- that shows where advantage truly lies. To use this lens effectively, one needs a new way to view the competitive landscape -- one that recognizes that the source of real value is found in the invisible assets that escape the notice of most business leaders," said Mr. Eckardt.

Why IP Matters as Much -- or Even More -- than Just about Anything in Business; How to Think About it

In The Invisible Edge, Mr. Blaxill and Mr. Eckardt delineate:

• Why IP is so important: Only IP allows companies to own the innovations that allow them to differentiate their products and services, exclude competitors, attract customers and persuade them to pay a premium. By contrast, the constant pursuit of operational and financial "best practices" puts companies on an endless treadmill that enables them to keep up with their competitors, but never get ahead.



• Why intellectual assets are unaccounted for and ignored by leaders, including those who care about "best practices": Because intellectual assets are unseen, complex and often technical and difficult to manage, they are typically delegated to scientists, engineers and attorneys; the C-Suite focuses more on operational and financial management, which is, in most cases, less important than IP, though it may not seem so in a business world designed to measure and control industrial processes.



• Why the correlation between operational discipline and long-term profitability is tenuous, at best: Operational efficiency is no longer sufficient to ensure profitability; it is merely table stakes. In fact, it may not be necessary at all. The pharmaceutical industry is famously undisciplined and in good times spends lavishly, but historically it has generated enormous profits -- until recently when many blockbuster drugs began to lose their patent protection.



• The often-conflicting IP imperatives facing strategic decision makers: Putting IP at the center of strategy means making critical choices about when and how to share and collaborate on intellectual assets; when and how to control them and make them proprietary; and how to simplify both products and strategies in order to change the basis of competition. "These are the most strategic choices that companies face," Mr. Blaxill said.



• The sea change in corporate strategy: from "fast company" to "smart company": Just as the "cheap company" of the past (the one that pulled costs out of products) gave way to the "fast company" (which accelerated time to market and improved processes), the "smart company" creates, manages and protects the best suite of intellectual assets to achieve sustained competitive advantage. Strategy now focuses on transforming a business into a "company of ideas."



• The leadership imperative for "smart companies": IP professionals -- including lawyers, engineers and scientists -- should prepare to move themselves into and be fit to succeed in the senior ranks of business leadership. And general managers need to be conversant with IP in order to use it strategically.



• The shape and structure of a successful, IP-focused company: Although there isn't an ideal shape or structure that applies to every business, companies that are disproportionately focused on the creation and management of their innovation assets are typically the most profitable. In fact, some extremely successful companies are IP Pure Plays: They make no products and sell no services at all. They create and leverage IP -- an approach that puts them at the top of the food chain, with no natural predators.



• The questions investors should ask: Did this company invent something important? Do they own it? How does the company manage and value IP (e.g., Who is the chief IP officer and to whom does that person report)? What's the company doing to expand the strength of its IP position?



• The questions political leaders should ask: How do we build and defend the strategic reserves of intellectual assets that have made the American economy the envy of the world? What are U.S. regulators doing to defend the value of American innovation and protect it from piracy both at home and abroad? "America's greatest contribution to the world is innovation," Mr. Eckardt said, "and innovation that is controlled through IP ownership represents the hidden reserves that can drive a sustained economic recovery."

Companies that "Get" IP... and Companies that Don't

The Invisible Edge tells the stories of dozens of companies that have achieved long-term success based on strategic management of IP. For instance:

• Gillette, which alone and as a unit of Procter & Gamble, keeps tight control of its innovations through the strategic use of IP. Its shaving business is more profitable than printing money.



• Toyota, which has led the way in collaboration, forging an IP network and turning potential rivals, such as parts suppliers, into partners in its innovation keiretsu.



• IBM, which simplified its product architecture in order to facilitate collaboration on its dominant System 360 mainframes... and almost succeeded with the same strategy on the IBM PC. Sadly for IBM, it failed to keep control of key elements of its system architecture and lost control of the market to Microsoft and Intel.

Other companies examined in the book include Asure Software (the creator of the ubiquitous JPEG photo compression standard), Hewlett-Packard, Ampex, Texas Instruments, Microsoft and Facebook -- with informative vignettes about how they have deployed IP in ways that yield significant competitive advantages.

Seeing the Invisible and Understanding the Networked IP Economy

The Invisible Edge addresses the central IP challenge -- that IP is invisible to traditional business measurement systems -- and suggests how to develop a new lens to make the invisible visible. It's possible to create a decision support system based on public documents and graphical maps to show hidden "IP networks" -- the relationships among patents, companies, technologies and inventors. According to the authors, such a lens shows:

• Patents. Who owns them, whether they are shared and how important they are to other companies.



• Companies. Which companies are leading and which are following. Who's at the center of the ecosystem and who's on the fringe. What positions companies have staked out for themselves, and where there is potential for collaboration and conflict.



• Inventors. Who is driving the innovation within your company and your competitors. Where collaboration is working and where it is absent.



• Investment. How dollars flow to intellectual assets, from what sources -- and what those investments reveal about potential winners and losers.

By bringing that information together in one place, this new lens shows how companies compete, where they are strong, and where they are vulnerable. It also reveals which companies are best positioned to control the innovations that will determine the winners and losers in the next phase of competition.

Navigating the Invisible Economy: Nearly Everyone Has a New Mandate

The authors provide specific advice for business leaders, technical and IP specialists, such as attorneys, engineers and scientists, as well as for investors and financial analysts:

• Managers and Boards: The Invisible Edge argues that IP is not just the job of tech and legal executives; C-level and Board-level leaders need to make it a strategic priority, be comfortable with it and manage it as actively and skillfully as operational and financial performance. Many companies should de-emphasize traditional assets and operations and focus almost exclusively on IP.



• IP specialists: Their role is central, and they must prepare to move into and be fit to succeed in the senior ranks of business leadership. In fact, they need to develop better ways of communicating the strategic importance of the assets they manage to senior leadership. As much as senior leaders need to learn to "speak IP," IP specialists must learn to speak the language of business.



• R&D and technology specialists: They also must learn to communicate their value in C-suite language and measures so they can ensure that their organization understands that value-creation really emanates from R&D, not sales.



• Investors and financial analysts: They must learn to see and measure 'invisible' assets and to evaluate companies based on their ability to create, control and manage their IP. "While it is a maxim to some in the financial world that all publicly available information is already 'baked into' the valuation of companies, that's just not true. There's a wealth of publicly available information embedded in patents that few have taken into account. This means real opportunity for those who know how to make use of it," said Mr. Blaxill.

Policymakers Are Key Players in the Invisible Economy: They Can -- Inadvertently -- Make or Break Competitiveness

The Invisible Edge shows how global economic competition is better understood as competition for IP. It explains how:

• Failed patent policy can be devastating: Xerox was brought down by an activist Federal Trade Commission that stripped the company of its ability to defend intellectual property.



• Japan got a free ride: U.S. anti-trust policies led to the rise of Japan -- a national economy built on IP "borrowed" from America. The Japanese miracle of the 1970s and 1980s was funded by the "world's greatest technology white sale": a gift from the U.S. government to Japanese industry.



• IP policy equals industrial policy: Policymakers should use the IP "lens" to track how national economies are faring and how globalization is really playing out. The competitive strength of emerging economies like China is reflected in the rapid evolution of policies that foster innovation, protect IP and establish it as the basis for economic competition.

"IP is the central economic asset of our times," Mr. Blaxill said. "Policymakers, no less than business leaders, ignore it at their peril. And when it comes to patent reform, they must ensure that American companies' intellectual property rights are upheld. If they're not, the country's last, and most important strategic asset, our reserve of intellectual property, could be squandered -- to the great detriment of our economy."

About the Authors

Mark Blaxill and Ralph Eckardt are managing partners of 3LP Advisors, an investment advisory firm focused on intellectual property transactions. Blaxill is a former senior vice president of The Boston Consulting Group (BCG) and was head of its Strategy practice initiative. Eckardt is the former head of BCG's Intellectual Property strategy practice and led the development of the IP visualization software featured in The Invisible Edge and on its Website, www.the-invisible-edge.com. They live in Boston.

For more information, or to schedule an interview with the authors of THE INVISIBLE EDGE, please contact Adria Greenberg of Sommerfield Communications at (212) 255-8386 or adria@sommerfield.com.