Ideas for Leaders #259

IP Management Strategies for Profiting from Business Model Innovation

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Key Concept

How do companies protect their innovative business models from competitors? According to this Idea, intellectual property strategies are often utilized to do this, and depending on what type of company, formal or informal strategies can be the most appropriate. This research looks at four types of business model to analyze the role of IP management strategies in profitable business model innovation.

Idea Summary

A company’s business model is the ultimate measure by which it is judged, as it expresses the underlying logic of its business. Most importantly, it explains how it creates and captures value—something The Economist describes as a company’s raison d'être. So how do you ensure something so important remains secure from competition? One way is to use intellectual property (IP) protection strategies.

In a paper accepted for presentation at the 2013 Academy of Management Conference, researchers from the University of St. Gallen examine how formal and informal IP protection mechanisms could potentially be used to protect business model innovation. They propose that different business models should be carried out with specific protections strategies; while some business models are characterized by both a high degree of formal and informal protection, others primarily apply informal protection mechanisms to profit from business model innovation.

Formal IP instruments include patents, trademarks, designs, copyrights, etc. On the other hand, informal protection instruments include keeping trade-secrets, complexity of products or manufacturing processes, a strong brand, qualified employees, loyal customers, etc.

Specifically, they looked at four types of business models:

  • The Franchising Model: here, the owner of a protected trademark (franchisor) grants another person or company (franchisee) the right to use his business concept and operate under this trademark (an example of this is McDonalds). Franchising firms only partially make use of formal protection instruments and pay higher attention to informal instruments. They hardly make use of, for example, patents; however, they do focus on informal protection strategies like building strong brands, strong distribution channels, etc.
  • The Razor and Blade Model: this model follows a ‘cross-subsidization logic’; companies give certain components of their business away for free or sell it below market price, in order to generate high margins on other parts of the business (examples include HP and Nespresso). Those operating under this model tend to extensively use formal as well as informal protection instruments. In addition, they are characterized by a very dominant and partially aggressive appearance on the market.
  • The Pay-Per-Use Model: in this model, two distinct groups of users interact on the platform of a third party, such as credit card companies like VISA who connect shoppers with retailers and subsidize the credit card holders. Firms that follow the pay-per-use logic vary in the use of formal protection instruments, but show a relatively low degree of formal and informal protection.
  • The Multi-Sided Platform Model: companies using this model differ from others by billing the customer solely usage-based (such as the video on demand industry). These firms show the lowest degree of informal protection, while varying in the use of formal protection mechanisms.

Overall, they found that all the participating firms took advantage of various protection instruments of both types, formal as well as informal.

Methodology: The researchers interviewed senior managers and collected archival data (such as press releases) from 24 firms. Participating companies came from a variety of industries and included fast food, fashion, music, healthcare and publishing companies. They also visited the Swiss Federal Institute of Intellectual Property to gain further insight into the process of how IP titles are granted. 

Business Application

It is clear from these findings that a firm’s choice of IP protection is contingent on its applied business model. Depending on the current business model it operates in, it might be useful to enhance certain protection instruments in order to generate competitive advantages. As outlined above, certain business models are better suited to certain types of protection.

New entrepreneurs can take the results as guidance for deciding about the business model they want to operate; depending on the current assets they own, they might be more successful running a business model they can protect and consequently capture higher value from. On the other hand, the results can help to allocate resources to where they are needed most.

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Authors

Institutions

Source

Idea conceived

  • July 2013

Idea posted

  • November 2013

DOI number

10.13007/259

Subject

Real Time Analytics