Innovation capabilities, from understanding customers to commercializing new products, determine financial success for nearly all firms in today's economy. By building a capability to manage IP within the innovation process, a firm maximizes the potential for lasting returns.
Although used loosely today, the term competitive advantage was historically reserved to describe the edge held by an exceptional firm that consistently generates profit above industry average. The firm employed a combination of valuable resources and the capabilities to use those resources effectively.
This notion of competitive advantage and sustained profitability is an unattainable myth in the absence of innovation. Profit reverts to the mean, if not worse, if a firm does not innovate. In this sense, innovation is defined as a commercial return on investment in an invention, not just a new idea. This is consistent with repeated studies reporting no correlation between financial performance and R&D expenditure metrics.
Financial performance is determined by capabilities for innovating, i.e. achieving commercial success. Such capabilities span the innovation process, from:
Another capability, integrating IP management with the innovation process, extends an innovation's financial impact. Valuable IP resources enable differentiation in rapidly commoditizing markets, providing opportunity for premium pricing and/or customer capture. IP barriers, against incumbents and new competitors, guard against premature erosion of market share. Over the past 5 years, MSA Safety, a small-mid cap industrial, has combined a best-in-class innovation process with IP management expertise across its product lines.
Just as important, IP asset ownership can salvage a return on the many so-called innovations that miss the original market. Integrated IP management processes capture IP early in the innovation process and during the development process, thus securing claims to technical alternatives and/or applications in adjacent markets. Such claims, i.e. ownership of important IP, can allow a firm to recover from a failed product introduction by quickly adjusting the product offering or target market or even adopting a partnership or licensing model that favors IP strength.
Given the role of innovation capabilities in a firm's long-term financial success, a prudent investment awaits in building capability to manage IP, thereby extending the impact of innovation.