Wharton 11: Appropriating Gains from Innovaitons

While innovation is a critical element of success for a company, they don’t guarantee success. In fact even a very useful and sought after innovation may provide no benefit to the inventor if an appropriate strategy for appropriating the gains from the innovation is not developed along with the innovation. There are a number of elements that can be used to help assist innovators in appropriating the gains from the innovation. The four key strategies are patents and related legal protection, secrecy, control of complementary assets, and lead time.

While patents and related legal protection are often the first thing that comes to mind when one thinks about protecting gains from innovation, this strategy is often not the best course for ensuring appropriation of gains. While patents can offer strong legal protection in certain industries in others there are a number of weaknesses. First are the legal costs associated with patents. These legal costs are high both because the need to separate patents into small manageable parts, often resulting in a large number of patents for a single product innovation, with each patent costing a large amount of money to obtain, and the need to enforce patents through the use of litigation which is always very expensive and can require a tremendous amount of time on the part of the inventor. Another major problem with patents is that it puts the details of the innovation into the public eye where all can see exactly what the innovation does and how it works. Patents not only allow inventing around, but because of this disclosure, often make it easier. Inventing around is the process of developing a competing process or product containing many of the benefits of the original product, but without utilizing the patented aspects of the product.

Secrecy is an excellent tool for the protection and appropriation of gains from innovations. Perhaps the greatest advantage to secrecy is that it greatly reduces the risk of inventing around or competition to the original innovation. Secrecy has this strength due to the inherent nature of very few people having access or knowledge of the innovation. Perhaps the greatest use of innovation is to increase the lead time that a company can have before an innovation has a large degree of competition. Perhaps the greatest weakness to secrecy is that it is very difficult or impossible to keep product (and to a lesser extent process) innovations secret after the product is released to the market, this is due to the ease of competition getting access to the product either through existing customers or by pretending to be a customer and acquiring the product.

Control of complementary assets includes resources such as access to distribution, service capability, customer relationships, supplier relationships, and complementary products.

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