Economia e gestione dell'innovazione

PROTECTING INNOVATION

Why innovation should be protected?

From a company perspective: a firm invested in the innovation and it should be able to capitalize on that + protection from imitation

From a society perspective: without protection, the incentive for an innovation will be negligible

Why knowledge is so relevant?

Knowledge economy

"In the old economy, people bought and sold 'congealed resources' - a lot of material held together by a little bit of knowledge. In the new economy, we buy and sell 'congealed knowledge' - a lot of intellectual content in a physical slipcase." - Brian Arthur

The economist J. Westerman:

In the shipbuilding industry, how to explain huge differences in productivity between Swedish companies, on one hand, and British and Dutch companies, on the other?

Possible explanations:

1. Invested capital differs BUT companies in the three countries do use the same machines
2. Machines get used with different knowledge makes them more

productive→Knowledge and innovation

New knowledge is intrinsically tied with innovation

Scienti c resource

Knowledge is composed by Technological resource

Technical resource

The innovator’s dilemma by Arrow

Innovation implies taking risk and bearing costs innovation is acceptable if a company can→ get rewards (higher pro ts) that at leastbalance risks

Temporary monopoly is a necessary conditionto get higher pro tsif temporary monopoly is impossible,nobody has the incentive to innovate

Which conditions make imitation dif cult/impossible to pursue?

Example: Dr. Pemberton was a pharmacist andthe inventor of Coca Cola. Firstly, he thought topatent his invention but then he changed hismind. He preferred relying on the secret becausethe list of ingredients is not enough to make theproduct successful. The secret formula of CocaCola is stored safely in Atlanta.fi fi fi fi fi

Is protecting innovation always the best solution?

Companies have two options:

PROTECTION DIFFUSION✓

✓Proprietary system favor higher reward

An open technology makes diffusion faster

✓Higher reward can be reinvested in other

A barrier-free diffusion can facilitate the availability of complementary goods

✓Company can bear short-term losses, that are compensated by continuous profits in case of a dominant design

Open technology can benefit from the development efforts of other companies

A company can maintain the "architectural" control of the technology

Basic services for free

Freemium models

Additional services to pay

Other good reasons for not protecting

Protection is difficult or even impossible

Protection is not effective

Protection is expensive

Protection is not necessarily going to work

Protection and appropriability=Reap and control the source of extra-profits that innovation offers

Imitability degree

Protecting an innovation is instrumental to grant appropriability

BUT not any innovation is appropriable in the same way depends

on→ Speed at which competitors can imitate the new productsfi fi fi fi

What must a company protect? Knowledge has two faces

Tacit knowledge Codi ed knowledge- -Not teachable Articulate- -Not articulated Teachable- -Not observable in use Observable in use- -Complex Simple/independent- An element of a system

Product of a company is the output of codi ed knowledge if you imitate the product, it is→ visible

Whereas tacit knowledge is more dif cult to protectfi fi fi

Video: How Steve Jobs got the idea of GUI from Xerox

Discussion questions:

a. What happens?Xerox shared its critical knowledge with Apple

b. What mistakes did Xerox do?Xerox gave the demo for free, the mistake was not protect the innovation properly

c. What should have Xerox done?Xerox could cancel the meeting with Jobs or make a contact with him (= non-disclosure agreement)

d. Did Jobs violate any rules?No, because there were any rules

Intellectual capital Tacit Codi ed+knowledge knowledge“Intellectual capital is the group

Il capitale umano è rappresentato dalle conoscenze, competenze ed esperienze che i dipendenti portano con sé quando lasciano l'organizzazione. Parte di questa conoscenza è unica per l'individuo, mentre parte può essere generica.

Componenti del capitale umano:

• Capacità di innovazione
• Flessibilità dei dipendenti
• Tolleranza all'ambiguità
• Motivazione
• Soddisfazione
• Capacità di apprendimento
• Loyalty
• Formazione formale
• Educazione

Il capitale relazionale è rappresentato da tutte le risorse legate alle relazioni esterne dell'azienda - con clienti, fornitori o partner nella ricerca e sviluppo. Comprende quella parte del capitale umano e strutturale coinvolta nelle relazioni dell'azienda con gli stakeholder, oltre alle percezioni che essi hanno dell'azienda.

Componenti del capitale relazionale:

• Immagine
• Potere commerciale
• Capacità di negoziazione con entità finanziarie
• Ambiente

Structural capital: the knowledge that stays within the firm. It comprises organizational routines, procedures, systems, cultures, and databases.

• Organizational flexibility
• Documentation service
• Existence of a knowledge centre
• General use of information technologies
• Organizational learning capacity

Some of them may be legally protected and become intellectual property rights, owned by the firm under a separate title.

Intellectual capital according to IFAC:

• Human capital: Know-how, education, vocational qualifications, work-related knowledge, occupational assessments, psychometric assessments, work-related competencies, entrepreneurial elan, innovativeness, proactive and reactive abilities, changeability.
• Relational (customer) capital: Brands, customers, customer loyalty, company names, backlog orders, distribution channels, business collaborations, licensing agreements, favorable contracts.

• Organizational (structural) capital
• Intellectual property
• Patents
• Copyrights
• Design rights
• Trade secrets
• Trademarks
• Service marks

• Stakeholder relationships
• Number/quality of partnering agreements
• Number/quality of distribution agreements
• Number/quality of licensing agreements
• Public opinion survey
• Market share
• Length of relationship
• Partner satisfaction index
• Customer retention

• Demographics indicators
• Number of employees
• Number of employees in alliances
• Average years of service with company
• Average age of employees
• Full-time permanent employees as percentage of total employment
• Employees working at home/total employees
• Number of women managers
• Competence indicators
• Employees with high qualifications
• People with PhD and/or masters degree/total employees
• Average years of service with the company
• Number of years in specific professions
• Definition of a

competence map.

Attitude indicators, for example, average level of happiness (measured with Likert-type scale); savings from implemented suggestions from employees; number of new solutions, products and processes suggested; qualitative descriptions of employees (commitment, loyalty, entrepreneurial spirit, enthusiasm); motivation and behavior indicators.

Human resource management practices indicators, for example, training expenses/employees; employee turnover; time in training; expenses for employee-development activities (social and personal); indicators about activities to motivate employees; indicators about recruitment practices.

Physical infrastructure

• Scalability/capacity measures;
• facilities/equipment versus plan;
• time to execute server updates;
• system integration;
• use of knowledge-sharing facilities.

Culture

• Management philosophy;
• number of internal disputes and complaints;
• qualitative measures about employee satisfaction;
• feedback;
• values;
• behavior;
• motivation;
• commitment;

loyalty;opinion survey.

Practices and routines

• Process quality; number of codified processes; networking practices; norms; database availability; intranet use.

Intellectual property

• Revenues from patents; number of patents and registered designs; value of copyrights; value of patents versus R&D spend; trademarks; brand recognition survey.

INTELLECTUAL PROPERTY RIGHTS - IPR

Copyright and design right - The exclusive legal right to reproduce, publish, sell, or distribute the matter and form of a fixed number of years, to print, publish, perform, film, or record literary, artistic, or musical material that makes media products distinguishable.

Example: this was not a violation because copyright is not a matter of using the same words, but copyright protect the way in which an idea in artistic form is expressed. A tangible support is needed for an idea to be copyrighted.

Novels

• Cartoons
• Graphic works

Music‣Protection by copyright varies usually 50 years after author's death→copyright is a source of value a writer can reassign her rights to a publisher→+Trade marks™ = a brand associated to a company and/or a producta brand is for identifying different product allow to associate specific features to the→ + producta brand convey critical information to customersTrade secrets= relevant information that is embedded in the processeg. To sell a super innovative robot, company A needs to disclose to company B valuable information BUT such information mustn't be disclosed to other companies by Bnondisclosure agreementPatentsThe old instrument used to protect intellectual capital“There are in this city, and because of its grandeur and virtue there come to us from other places, men of great genius, apt to invent and discover a variety of ingenious devices. And if it were provided that the works and devices discovered by such persons could not be imitated