Linking IP to Competitive Advantage  

POSTED BY Adam Bulakowski AT 4:00 P.M. OCT 3, 2011

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To be successful today and tomorrow, firms must execute on business strategies that exploit their intangible assets, like patents and brands.

In formulating its business strategy, a firm analyzes both its external environment and its internal composition. Externally, the firm studies the structure of the industry in which it competes, identifies market opportunities and threats, and researches social, political, technical, and economic trends. Internally, the firm articulates its goals, examines its current strengths and weaknesses, considers its positioning on the supply chain, and evaluates its own value chain.

The above analysis provides the firm with critical inputs to strategy formulation. In other words, given a firm’s understanding of its external environment and internal composition, how will it deliver unique benefits to its target customers? What choices and trade-offs will allow the firm to meet its overall goals? How should it compete, i.e. gain competitive advantage?

According to the classic strategy framework, a “resource-based view” of a firm, the combination of superior internal resources and capabilities create a competitive advantage. By definition, this advantage is persistent because competitors cannot easily imitate the firm’s resources or its ability to capitalize on these resources.

Superior resources may be tangible, like specialized manufacturing assets. But intangible resources are usually more difficult for competitors to replicate, and therefore they have the potential to create a more sustainable advantage. Intangible resources include patents, trade secrets, intellectual capital, relationships, brand, etc.

While many firms possess some of the above intangible “resources,” few of these firms have developed the resources strategically. Typically, a patent portfolio is developed in a vacuum, without business alignment.

Similarly, many firms employ a brilliant staff, but most intellectual capital remains tacit and undocumented. Dormant intellectual capital not only makes protection and exploitation difficult, but it also exposes the firm to loss with employee turnover.

Even fewer firms have developed the capability to capitalize on these resources. Fortunately, firms can develop processes for managing their intellectual assets. These processes aim to make patenting activities more relevant to business goals, eliminate wasted patent expense, capture and document tacit inventions, identify licensing opportunities, and so on.

To gain a competitive advantage in today’s economy, firms must not only possess superior resources. Firms must also possess the capability to manage and exploit these resources.

TAGS: Adam Bulakowski | Strategy
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