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I started to ponder my next blog post several days ago. My intent was to follow up on the last topic of “Fast Innovation” and begin digging in a bit deeper into how co-innovation among partners facilitates getting the innovation process to become congruent with market needs.  From my observation point within the SAP Co-Innovation Lab, I see evidence of project teams making a considerable effort to accurately determine the business drivers behind innovation needed to convince stakeholders that proposed projects will yield success.  Yet I do think there is an obvious challenge faced by anyone trying to do this when the idea is in any way radical.  Its potential value still gets assessed in the same way as a less radical new idea. By radical, I mean, disruptive. This might be an idea leading to an entirely new business opportunity or a new way of doing things that would represent a departure from what is done today. Less radical is to simply refer to introducing modest improvements to that which already exists. The really radical idea might be a very good thing to pursue, but if it is assessed in the same way as a typical sustaining innovation project; it is going to appear as too risky and likely be rejected.  

 

When I talk to visitors here in the lab about innovation I always ask people to give me their definition of innovation. Few, other than academics ever give me textbook definitions and I rarely hear anyone describe the difference between sustaining and disruptive innovation. How I typically hear innovation defined is as a new idea; something new that has never been seen or done before. Many often use the example of when we went from gas light to electric light with Thomas Edison’s invention of the light bulb. Few people realize however that while this was a truly remarkable invention, Edison didn’t create the light bulb in a vacuum. There were other scientists and inventors trying to solve the same problem at the same time. He simply arrived at a good enough result to claim the patent first.

 

Edison did two things well. First, he pursued ideas that he knew would take advantage of current thinking and interests, hitching his wagon to existing momentum and second; he understood the need of having to sell a new idea to others. Individuals and teams within a firm always need to sell others on their ideas but the way this gets done for incrementally improving an existing product or process is what is most familiar to business managers and executives. A much different process is required to consider the value and risk of a more disruptive innovation.

 

This needs to be figured out because it is disruptive growth that is most likely to dramatically increase revenues, profit, market share and shareholder value. Disruptive innovation can also be pursued through co-innovation with partners and may actually be the fastest way to get such innovations to market. I want to look at this more closely in a future post, but before we can explore what sort of model might work best for assessing the potential value of a disruptive innovation and more specifically for co-innovation, we also need to consider the contract framework needed for two partners to co-innovate intellectual property. It was when I started to think about this aspect of co-innovation that I realized two blog posts were better than one. This new assessment process needed for considering the merits of a disruptive innovation is also critical to successfully developing a bilateral approach to managing foreground intellectual property (IP) co-developed between partners.  Traditionally, partners interested in technology joint venture employ a variety of contractual elements to protect background IP contributed to any collaboration effort. This makes perfect sense as the threat of infringement is always present even when partners have solid trust relationships and a track record of working well together. Managing foreground IP with the contractual framework supporting co-innovation becomes even more critical. 

As part of my thesis research, I am conducting a survey of alliance managers, business development managers and attorneys in an attempt to understand what they think makes a bilateral approach to co-innovation contract development possible and can assure reasonable risk management or more so, risk sharing. I realize that in most firms, attorneys are charged with protection of IP and aggressively negotiating contracts that optimize the firms upside. I understand the reasons why but what my research tells me (so far) is that firms need to find more pathways to successfully innovate aside from R&D or through acquisition. We should expect to see an increase in successful innovations reach market through collaborative partnerships and co-innovation.  Recent studies are beginning to offer evidence that firms with sustained trust relationships with other firms actually drive new revenues and quality profits from such tacit knowledge exchanges.  I therefore think the IP framework and contractual model for co-innovation needs to be anchored more in a risk sharing approach. One possible way that might support such endeavors is through use of non-asserts for co-developed IP. This rightly assumes however that both parties seeking to co-innovate have a very good idea that their co-innovated technology will be successfully adopted and that they have a model designed to monetize it.

Developing such a business model is definitely a challenge but first things first. I want to confirm that attorneys have the tools and the capacity for building contracts that are bilateral with respect to the language of the typical IP provisions that get leveraged in the majority of collaboration or joint venture agreements. For the purposes of my survey work, one attorney has suggested that what may be interesting (and a better tool for predicting/influencing negotiation outcomes) is to assess the importance and relevance of factors such as the fact that companies simply have different degrees of risk tolerance with respect to IP and that the very nature of the IP will dictate the importance of some of these factors. What must also be considered is the competitive landscape in which the participants operate as this will also affect their sensitivity in the area of IP.  A good example of this is the differences occurring between two software vendors in determining how to co-innovate where the potential to compete head to head does not exist today but could exist tomorrow.  This will certainly play itself out differently than a software company collaborating with a hardware partner where the potential for directly competing is less likely.   

Lastly the business goals of each agreement or transaction are different with every partnership or project. The parties participating will subsequently have wants and needs that vary each time, although in the interest of co-innovation where the shared goal of trying to get to market as fast as possible is key, these wants and needs should be more concerned with the disposition of the spoils realized from the commercial success of the innovation versus the traditional emphasis that gets placed upon the ownership and assignment of rights for the underlying IP. Perhaps the best approach is to constrain the use of the IP to only the opportunity targeted by the co-innovation project unless the collaborators can agree upon a reasonable licensing schema permitting both to use the co-created IP in other capacities. It may be that if the aforementioned factors can be quantified, this could be used to predict the probability of a successful negotiated outcome. (This of course must be carefully defined).

If this can be verified from the research then developing a model for determining how to monetize a co- innovation emerging from an effort where the participants have invoked a non-assert approach to the co-development of the foreground IP will become a very worthwhile effort. 

I would really appreciate getting feedback on this topic. How would you define a successfully negotiated outcome between two software partners contributing and co-developing IP to bring new innovation to market? What other factors contribute to success or failure in negotiating IP rights for innovations created through partnership? I’d be very interested to learn if anyone has had direct experience with co-creating IP with a partner where the emphasis was placed upon creation of a business model that optimized ROI for both partners as opposed to focusing solely upon the value assigned to the IP itself.    

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  1. David Cruickshank Post author
    Maybe I should’ve posted this after January 1st. It’s a heavy topic for blogging but I get so many questions about it day to day that I’m fairly certain that there are a lot of opinions on the topic. Hope to see some comments- would be very helpful to develop a collective viewpoint.
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