Thursday, 24 September 2009

On Teaching "IP as a Cost"; "IP as a Profit Centre"

I had an interesting phone conversation this week with US colleagues who are planning to deliver a course on IP at their local business school. The discussion got me to thinking about doing some tweaking to the syllabus of my own course. In particular, I am considering how to address the issue of the "IP as an cost centre/IP as a profit centre" dialogue. One way to address the topic can be summarized by the observations set out in a September 11 Webinar entitled "The Emerging Role of the CIPO (Chief Intellectual Property Officer)" and sponsored by IAM magazine. There, distinguished IP personalities Rob Sterne, of Sterne, Kessler, Goldstein & Fox, and Ron Laurie, of Inflexion Point Strategy, presented the Webinar and the presentation concluded in part, as follows:

"*More and more companies are managing IP as a strategic business asset.

* CIPOs will be the visionary drivers for companies that are transitioning from an IP as a cost center mentality to an IP as a profit center model.

*A key success factor in an centralized IP structure is the ability to effectively manage relations with the head of each strategic business unit having a financial interest in the IP value forecast and revenue stream; the CIPO is in a unique position to master these relationships."
As I see it, (i) IP management should become a strategic concern; (ii) to do so requires re-conceiving IP as a profit rather than a cost element; (iii) a top-down approach spearheaded by the CIPO is the preferred structure to bring this about. There is bit of a 'true believer' tone to the contents of this Webinar presentation, and the idealized CIPO seems to require that he have a permanent letter "S" on his chest. Nevertheless, the points described above seem a pedagogically useful way to structure the topic, provided that they are addressed with a critical eye. Some of these criticial aspects include the following:
1. The approach seems to have a patent-centric orientation. What about trade marks and copyright? How do we fold in trade secrets to the analysis?

2. The approach is focused on a large company environment. To what extent is the approach generalizable, if at all, to small and medium companies?

3. It seems to me that IP can legitimately be a cost, as well as potential profit center, depending upon the circumstances. How do we account for both possibilities?

4. Where can we find examples to the operation of the "IP value forecast and revenue stream" at the business unit level?
Stated otherwise, how can I get my arms around the topic in an intellectually honest manner within a limited time frame in order to ensure that my treatment of the topic is not stuck at either the level of slogans or unhelpful generalizations?

4 comments:

Anonymous said...

I like this critical view. IP is definitely a cost center, but organizations should always make sure not to forget making it a profit center as well.
To achieve this, I think that IP should always exist in companies in order to support an actual business or business strategy. This is the only way how it can be seen as a true profit center. When it is seen as a cost center only, it is essentially in organizations where the IP function is disconnected from the business, and is only there to protect the R&D investments. Actually, I am wondering if it is not in companies where Research itself is a bit too much disconnected from the business. Of course, with e.g. patents, it is not always easy to make this link and to constantly align the patent portfolio to the (changing) business strategy. Organizations should try to keep those aspects in mind and try to find the right balance between maintaining a consistent IP portfolio that secures the R&D investments (cost center aspect), and constantly aligning this portfolio to the business strategy, and then truely use this IP portfolio to support the market exclusivity of the business (cost profit aspect). Here CIPOs have a critical role which definitely needs to be recognized and supported in any companies (large or SMEs) in order not to forget developing the cost profit aspect of IP, so that the cost center aspect is not the only one visible.

capital one cd rates said...

I agree with you here that companies need not only consider IP just as a cost center but they should work on making IP as a profit center too..

Ron said...

Neil,

Rob Sterne and I have been trying to get our arms around this topic for the past five years and have found it to be a challenging subject to say the least. The first rule is that there are very few rules in the sense of one-size-fits-all principles. Successful CIPOs are the result of a fortuitous coalescence of background, personality and organizational environment. And what works in one context may be doomed to failure in another.

As to background, the “ideal” CIPO should have a working knowledge of IP law and policy, business and product development, corporate management and finance, and all relevant technologies. As to personality, he or she should be a highly effective communicator (advocate), a great manager, and above all be passionate about educating senior executives and the board about all of the ways that effective IP management can add to the bottom line, increase shareholder value, promote innovation, and yes, reduce risk. Some of the more obvious relevant environmental factors are the size and maturity of the company, its organizational and management structure (e.g., flat vs hierarchical, centralized vs. decentralized), the industry (e.g., high-tech vs. life sciences vs. consumer products vs. medical vs. automotive vs. military/aerospace), and the revenue model (e.g., product, service, technology platform, IP licensing). It is critically important that the CIPO adapt to the operating environment rather than try to reform it. And like all idealized models, this should be viewed as a template or a target, rather than a job description.

The cost center vs. profit center issue reflects achieving the “appropriate” balance between managing IP risk and extracting IP value, and the balance point, like everything else in this area, will be heavily context-dependent. Contained within this issue is the organizational question of whether the CIPO should be embedded in the legal department and report to the General Counsel (the cost center/risk management view) or whether the CIPO should be the head of a free standing business unit or even a separate company, as in the case of AT&T and Philips (the profit center/value extraction view.

So, given the complexity of the subject, what do we do to advance the CIPO gospel? IMHO, the first step is to study the most successful CIPOs and develop a "bottom-up" compendium of success stories and best practices, which can be utilized to “design” the ideal CIPO function for any given context. It should be self-evident that this is much more art than science. We also need to think about how we “manufacture” future CIPOs. In this regard, the Center for Intellectual Property (CIP) at Chalmers University in Goteborg, Sweden has clearly taken the lead.

Ron Laurie

Neil Wilkof said...

Thanks to all of you for your most interesting comments. I think the two issues that are most challenging for me are: (i) the circumstances where IP is a cost centre and where it is profit centre and (ii) how do we understand the non-patent (and trade secret) world. For Ron, I think that success in "down-up" is where the battle will be lost or won, and that means a lot educational sloshing.