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Crossing the threshold to the age of ideas

This article appears in the issue February 1999 [Volume 8, Issue 2]

The explosion of electronic commerce is driving industry into the age of knowledge. New technologies offer better ways to create products, improve services and increase customer satisfaction. The electronic commerce market is projected to grow to $300 billion by 2001, according to the U.S. Department of Commerce. Other sources place the market even higher.

Whatever the global market number might be in two years, one thing is for sure: The company that can employ KM effectively will gain marketshare at the expense of those that cannot. Some industry experts say the advantage could be as much as a 40% increase in productivity.

Nowhere will that effectiveness be more visible than in the management of intellectual property-- and more specifically in the processes by which the intellectual capital of the enterprise is converted to bookable assets (intangible as well as tangible).

'The differentiating competency for the global competitor in the age of knowledge is the efficiency with which new wealth is created, protected and leveraged,'according to Dr. Claudine Simson, VP of Global External Research and Intellectual Property Rights for Northern Telecom (www.nortelnetworks.com).

Knowledge management is emerging as the framework to create that new and distinctive competency. The end product in many cases is the company's 'IP (intellectual property) portfolio.'Processes by which the portfolio is created and maintained to exploit existing corporate resources, protect marketshare and capitalize intangible assets are collectively referred to as 'IP portfolio management.'

A company must meet several critical challenges to cross the threshold from information to knowledge: understand their knowledge assets, protect and leverage their assets, and adapt to knowledge age management.

Many companies simply do not know what constitutes intellectual property. The prevailing philosophy is that the technology changes so fast that the IP is more easily and cheaply handled by keeping it a trade secret rather than going through the more tedious and expensive patenting process.

Building on IP foundation

That perspective is being exposed for its shortsightedness, because it fails to recognize how future technology will build on existing IP and how that same technology can be applied to other uses in years to come and markets yet unseen.

The portfolio approach to IP management recognizes the long-term value of IP as background assets upon which new commercial value (and maybe new IP) will be developed. The owner of background rights will enjoy a much longer (and perhaps even greater) stream of revenues through exploitation of the old IP with strong licensing partners, who see new market applications and introduce new capital to put that IP asset into play as a commercial product.

In that scenario, non-productive assets become productive ones, adding new revenues with low or no increase in capital employed. Such a scenario can have a dramatic impact on net profit and shareholder value.

Protect and leverageyour assets

The primary purpose of intellectual property is to protect the inventor's right to use his or her invention without theft by others. Theft and infringement are serious problems in international commerce and collectively reached $23 billion in 1996. The growing use of Internet communications and electronic commerce increase the vulnerability to theft and infringement.

International patents are expensive to maintain, so the strategic decisions in IP portfolio management are frequently the determination of which forms of IP should be protected in which markets. Market forecasts, competitive position and marketshare data are considered together with the return on capital and ROI to reach a decision on portfolio performance.

One method to accelerate the recognition of IP as an asset is to sell the IP to another company, commonly an IP holding company, which licenses the IP back to the original inventor for exclusive exploitation in the market. That sale establishes the IP value and creates an intangible asset.

Once IP has an assigned value, it becomes an intangible asset on the balance sheet and increases the company's net worth. The ability to convert an expense to an asset can have a dramatic influence on the company's attractiveness in capital markets. Access to capital is critical to the emerging company's ability to exploit its technological lead before it is surpassed by still newer technologies in the intensely competitive global economy.

Adapt toknowledge age management

The ability to recognize and book IP is an increasingly critical aspect of corporate agility and performance.

By using KM to integrate the disciplines that have grown into professions such as law, marketing, finance and computer science, the company can create a more competitive enterprise. The biggest challenge is to integrate those views to achieve corporate goals. As information is transformed into knowledge using KM tools, legal, business and technical priorities are focused on creating new products, penetrating new markets, capitalizing new assets and ROI. KM provides the principles, protocols and tools to effect a confluence among those traditional functions. In the absence, the company's innovative processes grind slowly as creativity gives way to tradition and markets erode in spite of marketing or sales intensification.

The IP portfolio is a safe place to adopt and test new business practices. Management of the portfolio develops the unique business model that can later be deployed throughout the enterprise.

Robert Kirtley, senior manager of KM practice for Deloitte & Touche; Mark Monterastelli, manager of new technology for MSC Advanced Technology; and Robert Shearer, executive director of the Center for Advanced Technologies, are members of the National Knowledge & Intellectual Property Task Force. For more information, contact Bob Shearer at 214-800-8810 or E-mail bshearer@caei.org

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