0:01
So we've talked about the importance of IP protection.
We've talked about the importance of complementary assets, so
let's ask the question of who profits for innovation in various scenarios here.
So here we have a little two by two.
We talk about weak versus strong intellectual property protection, and
we talk about complementary assets that are either widely available or generic, or
tightly held and specialized.
So take the scenario in the bottom left corner.
We have strong IP protection and
we have complimentary assets that are widely available or generic.
This is gonna advantage the innovator.
The innovator has strong IP protection and
they're able to access the complimentary assets that they need.
0:40
On the opposite diagonal, we have a situation where there's weak
IP protection and there's a tightly held complementary asset.
Then we would expect the complementary asset holder to prevail.
Once again, going to my previous example of Walmart having a dominate distribution
channel and a new innovator needing to use Walmart as a distributor.
Now if we're in a world of where we have weak IP protection and we have widely
available or generic complementary assets, this is actually a world where
it's difficult to make money just simply because we have a competitive market.
We're think we'll probably likely have competition both
on the innovation side and on the complimentary asset side.
On the other diagonal where we kinda have a strong strong situation, well then it
really comes down to bargaining power between those with IP protection and
those with complimentary assets.
So who has bargaining power?
Well once again we wanna think about the relative dependence of the innovation
on the asset and
then think of that as a ratio of the dependants of the asset on the innovation.
So the higher that ratio the more dependent the innovation is on the asset.
On the other diagonal here, excuse me, other dimension here,
we had the degree to which the asset is tightly held by the non-innovator again,
that I don't have any other option when trying to bring my innovation to market.
Well again, well those are low,
we're in a world where the innovator has the bargaining power.
When those are high both dimension, the asset holder has bargaining power.
And everything else becomes kind of shades of gray between these two extremes when it
comes to bargaining power here.
2:11
So, what did you do if you're an innovator and you lack a tightly held asset?
Well, if you go back to our two by two here, again
if you have strong intellectual property protection the assets widely available,
just simply use the market here.
You've got an advantage, you can go ahead and bring that product and
service to market.
Again, if we're in the weak generic quadrant,
well they're really are no good options here cuz we have a competitive market.
And it's gonna be very hard to appropriate value in that case.
If you're in the weak position as the innovator and there is this tightly held
or specialized asset, well then you might wanna consider integration.
You might wanna consider either being acquired or acquiring the asset provider.
And if we're in the strength situation,
the bargaining situation we talked about before,
it's important to recognize that we have the possibility of integrating together,
but we also might have a strategy for example of licensing technology.
So where you see this quite often is in the pharmaceutical industry where we have
these biotech companies, usually smaller entrepreneurial concerns,
who are coming out with new drug discoveries.
They lack the infrastructure for the sales, and marketing and
distribution of their drugs, which the pharmaceutical companies have.
But they do have strong IP protection in the form of patents.
As a result, there's a very robust market for licensing drugs and their patents
from the biotech companies to the pharmaceutical companies in those worlds.
3:37
So to summarize here, think about the following decision tree for innovation.
A series of questions you can ask yourself, and
then perhaps the recommended strategy for each of those.
So first we just simply wanna ask, is innovation important to our industry?
If the answer's no, then let's not worry to much about innovation.
I think we could argue in this day and
age that's a very rare occurrence where we're going to not worry about innovation.
So if we're worried about it we're in the yes column here,
ask yourself first do we have an innovative capability?
If the answer's no, then you might wanna think about a second mover strategy,
a fast follower strategy.
Maybe you acquire technology, maybe you imitate others.
Maybe you form partnerships and
collaborate in order to generate innovation.
But if the answer's yes and
you think you have a capability here and you can come up with some new ideas,
then you wanna ask the question about this intellectual property regime.
If it answer is it's not tight and it's hard to predict, then you might actually
wanna think about well maybe we should be doing an imitate strategy, or
second mover strategy.
But if you do think you can appropriate some of the value because the IP regime is
tight, then you gotta ask about the complimentary assets.
If you own and control those complimentary assets, or that they're not tight,
or not important, well then you go ahead an commercialize it yourself.
However, if there are some constraints here,
some bottlenecks you need to be concerned about, then you need to ask,
how widely available are these complimentary assets.
If they're not, think about licensing or contracts.
If they are, then once again you might commercialize, or use the market yourself.
So again I wouldn't suggest this is a hard and fast set of rules,
but it's at least a way to start thinking through these sets of questions about
appropriability and the ability to innovate.
Michael LenoxSenior Associate Dean and Chief Strategy Officer
Jared HarrisSamuel L. Slover Research Chair in Business Administration
