By John Rosling, UK CEO of Shirlaws
“Our value is basically our intellectual property (IP) and its deployment,” Rob van der Meij
The traditional business designs a product and sells it to create a major product stream. But the more advanced business model is built on intellectual property (IP) to generate much higher value than the traditional “product only” business.
Capitalising on IP in businesses is currently a minority activity – for two reasons.
1. Most management teams have never worked with company IP before, only product IP.
2. IP is an undiscovered asset within most businesses. It’s unrecognised and therefore not commercialised.
If you don’t even know it’s there how can you even begin to capitalise on it?
The Product era to Service era
Let’s look first at some business history. The Product era of the 1950s and 1960s was packed with the innovation, design and manufacture of new products. Some say there were more new products designed post World War II than in any decade since. After World War II manufacturing plants became idle and companies wondered what to do with them. This over-capacity kick-started a time of intense innovation to provide the 1950s with new kitchen and household appliances such as TVs, washing machines and home gadgets.
Most products designed in the last 10 years are applications of previously existing products. We could say we’re now in a product “remix era”, as in the music industry. In a remix there’s no real innovation. Businesses simply take what’s been previously done and extend it by mixing it up and putting it back out to the market again.
So how much product is new? Not a lot.
The boom ‘50s and ‘60s “the Manufacturing Product era” has now given way to the “Service era” as per the fact that over 70% of mature economies are now based on service industries rather than manufacturing industries.
And so how do you manufacture product in a Service era?
Answer: it is developing Company IP that differentiates one service company from another.
The next big shift for businesses will be learning how to consciously build this IP as the Company IP skill set is not yet understood.
What is IP?
IP is your company’s “know-how”. It’s not just your product, it’s what you build your reputation around. Let’s take a household name as an example.
• Which company? McDonald’s.
• What do they sell? Hamburgers.
• What’s their IP? In other words, what’s the company know-how? Are they known for being good at building hamburgers? No more than another hamburger company. So what in particular does McDonald’s do well? McDonald’s IP, or know-how, is around franchising – it’s what sets them apart from other hamburger companies.
• Have they commercialised their IP? Do they make revenue from their IP or only from their food product? McDonald’s actually makes money from franchising, which gives them much higher value.
Here are some more examples
Three companies in the list above are clearly making money from their IP. The McDonald’s company IP is franchising, not making burgers. Virgin makes money from their IP, which is brand management, and not just their products. Southwest Airlines has a great culture. People love working there and people love flying with them. Having created a great culture, they’ve now commercialised this IP to add even more value to their company.
A further example just for fun is Football. Manchester United reportedly has over 75 million fans around the world – and so they must have some IP. But, have they worked out what it is? If they haven’t then of course they can’t leverage it – meaning they are stuck with only make money from the originating product (gate money and sponsors cash).
Here’s an example of how much more difficult it is to commercialise Product IP over Company IP.
One oil company is known for its research ability. It can drill for more oil than other companies because it has better technology – their IP is around their Product. If they sold their technology and made money out of it, not just applied it to drilling for oil, they would have commercialised their IP and created Company IP.
Why not do this? In this example, they wouldn’t want to sell their Product IP to a competitor. But if they had consciously recognised their research and technology capability as Company IP, perhaps there’s a way to sell technology management to a non-competing industry?
Revenue generation and IP
Companies make more margin from commercialising their IP than from their originating product. It’s like making more money out of your second, third and fourth product than your first. The best opportunities for commercialising IP are in those industries that haven’t yet built IP. Industries where IP is already commercialised are advanced, mature industries and difficult to break into.
Try the following steps.
1. Write down the name of your company
2. Write down the product you sell.
3. Write down your IP – the know-how that makes your company a great company and your product a great product.
At one time Royal Mail in the UK thought their IP was delivering letters, but discovered it’s really about managing distribution channels. This brought about a complete paradigm shift and re-evaluation of the business, how to measure quality of service and the hidden potential lying within the company.
IP shifts business paradigms
Opening up the IP conversation creates a big kicker for business and shifts the management paradigm regarding who they are and what they do well. It also marks a certain maturity level. Many businesses are not very old and have not yet gone through this thinking process. They’ve spent the first 10 to 20 years building their product and then ask themselves, “Now we’ve got here what’s our company IP?”
In this approach, IP is an afterthought. The IP has not been designed, but has been discovered more by luck. But it’s possible to build the company’s IP at start up by asking, “What do we want to be good at? What’s the gap in the market? What aren’t companies doing?”
IP improves the chance of JV success
The IP conversation has an important bearing on company relationships. When businesses create JVs, the various parties bring different parts of the whole together. It might be two parts of a product or it might be that one brings a product and one brings a market. Many of these are built on hope -many JVs fail because there is no clear IP, no IP linkage between the companies, or their IP is radically different.
If companies began the JV conversation by defining the IP of each party, then the chances of success – and avoidance of failure – would be much higher.
We often find this situation in the sponsorship world. Say a company decides to sponsor the Olympic Games. Now you have two products: the Olympic Games and the sponsor’s product, for example Nike. Running and shoes are close enough to form a link and work together, so the customer understands the relationship.
What if it’s the Olympic Games and a product without an obvious link e.g. McDonalds? The sponsoring company would need to create some IP to educate the consumer so they could make a positive link – otherwise why bother? Companies frequently sponsor football clubs, but the link isn’t obvious when the sponsoring brand and football club are miles apart. Consumers don’t understand the linkage and the sponsoring company might just as well put an advertisement on the TV.
Shirlaws helps business owners transform their businesses. From unblocking barriers to growth to ensuring the business pays richly in time and money, our systematic programme has transformed the lives of thousands of owner-managers all over the world. Founded in 1999 Shirlaws has now grown to include operations in North America, UK, Europe, Middle East, Australia and New Zealand. Shirlaws has redefined business coaching with our unique approach based on establishing a balance between commercial outputs (e.g. increased revenues, profits, efficiencies) and cultural improvement (e.g. better leadership, communications skills, life balance). Our coaches take the many complex issues involved in running a business and help make them simple and easier to manage. We work alongside clients to guide their businesses to achieve long-term, profitable and sustainable business growth. What Shirlaws brings is a language and system for growing businesses and building internal capability. A language and system that gives our clients three simple things: more time, more money, and less stress.
John Rosling will be speaking at Fresh Business Thinking LIVE!. His session will explore: how successful businesses understand the unique “intellectual property” that is the rocket fuel of their business; how they use that knowledge to drive extraordinary future revenues; why innovating the way you package what you sell is the fastest way to secure new markets at this stage in the cycle; how product evolution and looking “beyond service” will create clients for life; and how the businesses that fail will be the ones that simply carry on selling the same product in the same way at the same price.
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