The resulting management stalemate convinced company executives that they needed a new way to think about potentially overlooked intellectual assets that could produce more growth. With the help of Don Davis and Dave Crawford of the IP consulting firm Commercial Strategy LLC, GE created a methodology and framework for mapping and assigning economic and competitive values to its technology and IP.
GE began by charting the turbine business to determine which companies made how much money in each segment of the industry. Next, the company highlighted the areas of the market where coming up with solutions to existing customer problems seemed to offer the largest rewards. Against this map of high-value possibilities, GE overlaid the intellectual property holdings — the patents and know-how — of GE and each of its rivals, detailing their respective strengths and weaknesses and placing a real competitive value on the IP.
What GE discovered, says Joe O’Shea, the company’s recently retired chief innovation officer, “blew both sides of the turbine debate right out of the water.” The analysis revealed that selling the remote tuning technology as a hardware product would eventually enable competitors to supplant GE as the service provider for the turbines. This would in turn jeopardize more than $28 billion in current and future service fees that the company expected to earn. Indeed, patent filings indicated that Siemens was already well on the road to developing a technology of its own that would allow it to exploit GE’s hardware.
But retaining ownership of the remote tuning technology and simply deploying it as a service enhancement was not a high-value solution either. Although it would certainly save GE the $27 million yearly cost of sending personnel to customer sites, it would nonetheless leave a lot of money on the table — a staggering $750 million in annual downtime costs paid by the utilities to buy energy on the spot market under the current system. GE felt it legitimately deserved a piece of this savings as a reward for producing a solution to eliminate most of the downtime costs.
The company realized that it would have to come up with a better approach. It devised an entirely new business model for its remote technology, one that leased it to customers while simultaneously licensing to them the associated IP and service procedures. GE would retain ownership of the hardware, blocking encroachment by competitors and enjoying significant licensing revenue. Moreover, GE would also retain rights to customer data from this system, which would enable the company to leverage everything it learned from operating and servicing 300 gas turbines globally to build a “predictive intelligence” platform for delivering service and supply chain improvements to the utilities. This vital intellectual asset was a key differentiator for GE that no competitor could match.
Finally, because the technology would be protected by license, GE could share proprietary knowledge about turbine operation with the utilities, allowing them to make their own adjustments to the equipment to boost performance and stability. One utility, Florida Power & Light, saved more than $18 million within just the first few weeks of the new agreement.
Over the last three years, this strategy has enabled GE to generate $300 million in new, high-margin revenue. What’s more, the division’s president, John Rice, has since been promoted to vice chairman of GE, and is now one of the few senior corporate executives with valuable experience in using intellectual assets to drive growth. But he won’t be alone for long, as corporate IP strategy innovators, inspired by the GE example, blaze similar trails one company at a time.
David Kline ([email protected]) is a writer and consultant specializing in intellectual property strategy. He is the author of Rembrandts in the Attic: Unlocking the Hidden Value of Patents (Harvard Business School Press, 1999).