Mark Blaxill and Ralph Eckardt
The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property
David J. Teece
Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth
(Oxford University Press, 2009)
Malcolm S. Salter
Innovation Corrupted: The Origins and Legacy of Enron’s Collapse
(Harvard University Press, 2008)
In a year when the market value of the fortune 500 fell by 37 percent and profits plummeted by 85 percent, conventional strategy books seem beside the point. Keys to guaranteed success? If only there were such a thing. Delivering high performance? Not very likely. Effective strategic planning? JPMorgan Chase & Company’s CEO, Jamie Dimon, said that he didn’t know any company that was following its three-year strategic plan or even its one-year forecast; companies were operating strictly on a month-to-month basis.
Yet if the current crisis affords us one thing, it’s the chance to stand back and reflect on eternal questions of strategy: How should we lead companies in competitive arenas where success is relative, not absolute; where technologies change rapidly; where profits attained in one time period are eroded in the next? What’s the best way to drive companies forward when they have to run faster just to stay in the same place (a phenomenon described by William P. Barnett in last year’s best book on strategy as “Red Queen competition”)?
With these questions in mind, a few new strategy books stand out from the pack. They would be good in any year, but in the present environment they have the virtue of reminding us what it takes to achieve and sustain high performance.
The year’s best strategy book is The Invisible Edge: Taking Your Strategy to the Next Level Using Intellectual Property, by Mark Blaxill and Ralph Eckardt, formerly of Boston Consulting Group and now running their own practice. Intellectual property (IP) often brings to mind patents and lawyers, but this notion is far too limited. In fact, IP is about much more than patents; it also encompasses trademarks, copyrights, and brands, as well as trade secrets, which are aspects of knowledge kept safely away from the eyes of competitors. Seen this way, the entire field of knowledge management is essentially the management of intellectual property. IP isn’t a legal issue but rather a business issue, and, as the authors point out, far too important to leave to the lawyers.
Blaxill and Eckardt maintain that companies with the highest returns tend to have advantages that effectively limit competition. “As we know, when competitors smell profits they come running, so without some form of protection, those companies will quickly copy the innovations and drive the profits (for both the innovator and themselves) down to nothing.” The authors’ thinking is linked closely to the industry analysis framework pioneered by Harvard Business School professor Michael Porter, which emphasizes the importance of differentiation as a defense against rivals. “Intellectual property,” Blaxill and Eckardt write, “represents small monopolies.”
If the authors left matters there, they would add little to earlier discussions. Much of this terrain was covered by Hiroyuki Itami in Mobilizing Invisible Assets (with Thomas W. Roehl; Harvard University Press, 1987), and the ability to apply knowledge without loss was addressed by Carl Shapiro and Hal R. Varian back in Information Rules: A Strategic Guide to the Network Economy (Harvard Business Press, 1998). The Invisible Edge takes the discussion a step further by analyzing how companies can protect knowledge-based capabilities and retain the benefits for themselves.
The key argument is captured in a refrain that echoes throughout the book: Innovation without protection is corporate philanthropy. All too often, Blaxill and Eckardt argue, managers emphasize innovation without considering how to capture its benefits. They essentially make a unilateral donation to others. The authors explain: “Simply put, when businesses invest in intellectual assets they need to protect the fruits of their investment in the form of intellectual property. Only with the appropriation of ownership rights, and not the creation of the asset itself, does an investment provide competitive advantage.”