march, 2004 © linen 1 a model to extract, capture and protect value coming from innovations of...

March, 2004 © LINEN 1

A Model to Extract, Capture and Protect Value coming from Innovations of Small &/or New Innovative Companies (SNIC)

HEC LINEN – INPI

M. Santi (HEC) in partnership with H. Gasiglia, S. Reboud, A. Sabouret and with the support of A. Bachani


Introduction: objectives, founding concepts, methodology & mode of operation of the model


Objectives and Subjects dealt with

This model was developed to:• allow Small or/and New Innovative Companies (SNIC) • to extract maximum value/profit from the innovations that

they engender• by adopting a development mode (internal or external) which

is most appropriate for them• and to anticipate and define the best Intellectual Protection

(IP) strategy

However, this model can easily be extended and applied to other situations: innovations of large companies, valuation of a patents/innovations portfolio…


Directions for use of this Model

Acronym, Action buttons, Help….or how to use the model and navigate within it :

• Use the “Note“ function to find detailed explanations and comments of each slide

• this button enables the user to access a detailed content of the slide in action

• Glossary provides the user, through an internet link, the definition - and sometimes the illustration - of the underlined word

• this button should be clicked to follow a pre-defined path either related to the configuration of the innovation or in case of junction

• this action button allows, after the use of one of the 3 previous buttons, to return to the original slide

• signals the existence of a mini case which illustrates the concept or approach used in the slide


At the heart of the model: The Concept of Rent

• Rent: a super-profit linked to an abnormal competitive situation (market or asset monopoly) that a company enjoys in a sustainable way

• Rent and innovation– The innovation allows the creation of a competitive advantage

which generates a rate of potential profit > the industry norm– Only the innovation can benefit from a strong and lasting legal protection, creating a sustainable monopoly

– Depending on the nature and type of innovation, the magnitude and the value of the rent will differ

Rent Innovation


- - - + ++Volume of the rent

Profit Rate of the rent

Duration of the rent

The 3 Components of Rent

Rent Configuration on Vol / Rate / Duration

Magnitude of the rent= Vol x Rate x Duration


Typology: Rent configurations of an innovation

duration

rate

volume

++– –

duration

rate

volume

++– –

– – ++volume

rate

duration

duration

rate

volume

++– –

duration

rate

volume

++– –

1. Dwarf

3. Gadget

6. Optical Trap

2. King of petrol

4. Joker

duration

rate

volume

++– –

5. Oasis


Gradual Erosion of the rent

Type of innovation

Insertion of the innovation in its environment, which generates friction effects due to the competitive context

Insertion of the innovation within the business and of the innovator

characteristics

Potential Rent of the innovation

Appropriable Rent for the innovator

Residual Rent of the innovation


Approach and a Generic Model

1 – The innovation & its characteristics

Type, magnitude & characteristics of the innovation & their effects on the rent: its volume its profit rate its duration

3 – Insertion of the innovation within a business

Risk analysis, friction & capturing effects on the rent of: attractiveness of the business 3.2 competitors reaction 3.3 competitive situation of the innovator 3.4

2 – Insertion of the innovation within its environment

Risk analysis and friction effects on the rent of: demand-client (volume effect) 2.1 business chain (profitability effect) 2.2 substitutes (duration effect) 2.3 complementors (global effect) 2.4 regulations and lobbying forces 2.5

Variables of the model Magnitude & configuration of the rent

- +

- +

- +

3 – appropriable rent that may be captured by the innovator

3

12

2 – residual rent, after the friction effects due to the economic context

3

1

2

1 – potential rent that the innovation is able to generate

1

2

3

Development (valorization) &

protection strategies(4)

The analysis should be “dynamic”

Autonomous development

Abandon

License-out

Co-operative development

Protection

Sell-out


Part One: Assess the potential rent

Analysis of the components of the potential rent in order to assess its

magnitude and to spot its configuration

Potential Rent

Binem, IRSE300, OpenVox et PAC,


Assessment and Classification of the potential rent

This first step of the model must be carried out whatever the innovation:

• first estimate the potential rent of the innovation thanks to the assessment - volume / rate / duration - tables that follow

• then take care to clearly identify 2 characteristics of the innovation that will have an impact on the whole analysis:

• the standalone standalone or system nature of the innovation (effects on recommendations)• the existence of one or multiple business application domains for the innovation

• and finally come up with the configuration of the innovation potential rent that will structure the future path to be followed within the generic model

Potential Rent


What is the nature of the innovation?

Innovation Type

Isolated or solo STANDALONESTANDALONE

Component within a system, SYSTEMSYSTEM

Substitution in an existing market

It improves without significantly changing…

and integrates

in…

….a system &

a network

the dominant standard the existing system: substitution of the existing component without

changing the others (the architecture may possibly be modified)

1 – Harder & Better 2 – Meccano

It creates a new standard…

andrebuilds

that eliminates the dominant standard

that disqualifies the existing system and replaces it with a new one

3 – New Player 4 – New Deal

Creation of a market

It creates a new market / business…

…or constructs

by introducing a new standard by offering a new system

5 – New Frontier 6 – Full Monty

Potential Rent

Back to: Profit rate assessment Sacrifices CPUV substitution Complementors unavoidability

The IP claims about the innovation may facilitate the

identification of its type


Estimate the volume of the potential rent

Potential Turnover (Volume)

Very weak Weak Medium Strong Very High

Business diffusion potential : the spectrum of potential applications is…

Very limited(1 niche)

Limited(2 or 3 niches)

Medium (more than 1

large application)

Large (several

applications)

Very large (multiple

applications)

Geographic diffusion potential: the natural market of the innovation is…

Purelynational

European or regional

Developed countries

Developed countries + some developing ones

Worldwide

Potential size of the client-markets: the size of the addressable market of the innovation, once in a mature phase, annually amounts to…

< 50 million €

50–200 millions € 0.5 billion € 1–2 billion d'€ > 3 billion €

Exploitation Limitation:The claims of the existing patents prohibit…

All zones & application domains

The key zones &

application domains

Certain application domains or

zones

Very few elements

IP not existing /

maintained. Freedom to

operate

Summary Value - - ++

Reboud:

Éviter les valeurs moyenne en synthèse

Reboud:

Éviter les valeurs moyenne en synthèse Potential RentA solid IP policy can help extend the

spectrum of application domains


Estimate the profit rate of the potential rent

Profit Rate Very weak weak Medium Strong Very strong

Mode of generation of the innovation: innovation was developed…

In isolation from the market

(except nuggets)

With suppliers

With Research Centers

With clientsWith a large

& diverse network

Type of innovation: the innovation type is …

Harder& Better

Meccano

New Player

New Frontier

New Deal

Full Monty

Nature of previous protections possibly limiting the profit rate potential …

Disclosed, the innovation is

public

Negotiation with the

patent holder is possible

An improved patent is

possible to be filed

The innovation is free from any existing (or pending)

form of protection.Freedom to operate


Potential Rent

For more details on the type, click

Upstream protection of innovation is a sine qua non condition


Potential duration of exploitation

Very weak Weak Medium Strong Very strong

Technological foundation of the innovation: the technological bases of the innovation are…

Applied research & sciences Fundamental research & sciences

SimpleProcess

Original combination

of techniques

New dominant

design

New technological

platform

New scientific paradigm

Innovation intensity of the application domain: the frequency of innovations & patents in the industry is…

Very high High Medium Low Very Low

Technical imitability of the innovation: the natural base of the innovation makes copying…

Very easy Easy Not very easy Difficult Very difficult

Legal imitability: the value of the protection makes copying… Very easy Easy Not very easy Difficult Very difficult


Estimate the duration of the potential rentPotential Rent


Position the innovation on the potential rent components: Summary

Potential Rent

- - - + ++Volume of the rent

Profit Rate of the rent



Potential rent of the innovation: Which Configuration?

duration

rate

volume

++– –

duration

rate

volume

++– –

Potential Rent

Dwarf: Don’t keep on running the analysis, go directly to the recommendations & come to the conclusion that this innovation presents no possible development (valorization).

…and which path to follow within the model

Dwarf Path - always click on this button

Gadget: Make sure that the profit rate stay significant (Part 2.2, & possibly 2.4 & 2.5 of the model, then 3.2) before analyzing the capability of the SNIC to capture this rent quickly (Parts 3.3 to 3.5 dealing with competition)

Gadget Path – always click on this button

duration

rate

volume

++– – Oasis: First ascertain the true duration of the potential rent (Part 2.3 & possibly 2.4 & 2.5) then its profit rate (gadget approach) before possibly continuing with the rest of Part 3 once these hypotheses have been checked out

Oasis Path - always click on this button


Potential rent of the innovation: Which Configuration?

duration

rate

volume

++– –

duration

rate

volume

++– –

Potential Rent

…and which path to follow within the model

If necessary, click on this button

If necessary, click on this button

Joker: Run the entire model

King of Petrol: Run the entire model

duration

rate

volume

++– – Optical Trap: First ascertain the consistency of the potential rent volume (Part 2.1, and possibly 2.4 & 2.5) then of its profit rate (see the gadget approach) and, if necessary, study the competitive position of the SNIC (Part 3)Optical Trap Path – always click on this button

If If the rent volume is linked to the existence of several application domains, click click here in a first here in a first instanceinstance

!


In Case: High volume – Multiple applications

Potential Business Volume (revenue)

Very low Low medium High Very high

Business diffusion potential : the spectrum of the potential applications of the innovation is…

Very limited

(1 niche)

Limited(2 or 3 niches)

Medium(more than 1

large application)

Large (several

applications)

Very large (multiple

applications)


If the innovation fits to one of these 3 cases, then analyze each of the different application domains (markets or industries) that it covers on the 3 rent dimensions, determine the rent configuration for each and pursue an individual analysis for each configuration in Parts 2 & 3, in accordance with the indicated paths.

“We are looking for an attractive niche that the SNIC may exploit in an autonomous way”

Click here to move on

Potential Rent

PACPAC


Part 2: Assess the Residual Rent

Analysis of the erosion or amplification effects on the potential rent since the

innovation is inserted in its environment.

Residual Rent


Insertion in the environment: the risksResidual Rent

Upstream Downstream

Substitutes Substitutes (2.3)(2.3)Possible effects on the rent duration

Client-Markets Client-Markets (2.1)(2.1) Possible effects on the rent volume

Business

Pressure, Pressure, regulations, regulations, lobbying lobbying (2.5)(2.5)

Possible effects on the 3 components of the rent

Complementors Complementors (2.4)(2.4)

Possible effect on the rent volume and profit rate

Business ChainBusiness Chain (2.2)Possible effects on the rent profit rate

Innovation


2.1.a Client-Market: Its Adoption Propensity face to innovations

Usual adoption rate of an innovation within the client-market

Usual adoption speed of an innovation within the client-market

Marginal Normal All or nothing

Slow

Bad OptionEliminate this

application domain and find other applications.

If not freeze all expenses…

Exhaustion

Particularly unfavorable for a

SNIC

Roulette

Favorable but requires resources while waiting for results; not the best

case for a SNIC

Fast

WastedExploit quickly on

condition that massive investments are not

required; if not move to Bad Option

Gestation

At first glance, the most favorable situation for a

SNIC

Money-Spinner

Favorable, but the volume and growth are often difficult for a SNIC

to handle alone

Residual Rent


2.1.b A Key concept: The CPUV

• To find its place within a market, any innovation must bring the customer a significant “advantage”, so that he adheres to it and buys it; it should “create value” for the customer

• And this value should be sufficiently perceptible & useful for the client(s); we shall speak of Customer Perceived Utility Value (CPUV)

• We can “estimate” the CPUV as a trade off between what the innovation is likely to bring the client and what he is required to give-up or sacrifice in order to adopt it

CPUV = Perceived Benefits – Perceived Sacrifices• Differentiate the analysis depending on whether the innovation is

– A substitution-innovation, in which case the CPUV is relative and “measured” against the current reference offering in the market

– A market creation-innovation, without any possible reference and so “measured” in absolute terms

Residual Rent

OpenVox, Glacé, OpenVox, Glacé, PACPAC


2.1.c CPUV of the innovation – in case of substitution-innovation: Benefits

low HIGH

value / price Low Relative Advantage

>>1 : High Relative Advantage

Simplicity,visibility, “testability” Not very Transparent Highly Transparent

Innovation Type, hence compatibility with

what exits

Low : New Deal orNew Player

High :Harder & Better andcompatible Meccano

Summary of perceived benefits low HIGH

Residual Rent


2.1.c CPUV of the innovation – in case of substitution-innovation: Sacrifices

Low Perceived Risk HIGH Perceived Risk

Type of innovation, hence effect on the

standard

Standard unaffected: Harder & Better and compatible Meccano

Standard affected: New Deal

or New Player

Transfer Costs low HIGH

Summary of perceived sacrifices low HIGH

Residual Rent

To continue the session, click here

For a refresher on the “types”, click


2.1.d CPUV of the innovation – in case of market creation-innovations: Benefits

low HIGH

Resolution of an unsatisfaction (time, task,

possibilities offered)

LowRelative

Advantage

HighRelative

Advantage

Simplicity, visibility, testability Not very Transparent

Highly Transparent

Compatibility of the know-how Low High

Summary of perceived benefits low HIGH

Residual Rent


2.1.d CPUV of the innovation – in case of market creation-innovations: Sacrifices

low HIGH

Adoption perceived risk low High

Anticipated price (minimum level price) low High

Summary perceived sacrifices low HIGH

Residual Rent


2.1.e Summary: CPUV & the Friction effects on the rent volume

Perceived Sacrifices

HIGH

“No Way”Very important frictions,

almost no rent volume can be captured

No point in getting in?

“Infatuation”High level of friction, uncertain rent volume

Rework the innovation to diminish the sacrifice levelDanger for a SNIC

Low

“Wet Firecracker”High level of friction,

low level of rent volume to capture

Keep on working the innovation to improve its performance, else

drop it

“My Way”Allows to quickly capture the

maximum rent volume

Favorable

Low HIGH

Perceived Benefits

!

z

Residual Rent

OpenVox, Glacé,OpenVox, Glacé,PACPAC


2.1.f Client-market: Effects on the rent configuration Residual Rent

BEFORE - - + +

Volume of the rent

Profit rate of the rent


AFTER - - + +

Volume of the rent



Potential Rent

Residual Rent


2.2.a Balance of power within the Business Chain

UPSTREAM LINK BUSINESS DOWNSTREAM LINK

Impact of upstream link on cost & quality of the downstream link offering

high low high low

Transfer cost/ Cost of changing suppliers high low high low

Relative Concentration + upstream + business + business +downstream

Relative Value of the IP portfolio + upstream + business + business + downstream

Capability to integrate Upstream / Downstream + upstream + business + business + downstream

Impact of Sale/Purchase Volume + upstream + business + business + downstream

Summary: Balance of power in favor of…

upstream business business downstream

Residual RentBactiSTOP, BinemBactiSTOP, BinemGlacé, PACGlacé, PAC


2.2.b Summary: Business Chain & Friction effects on the rent profit rate

Balance of Power

UPSTREAM LINK /

business in favor of…

UP

STREAM

+/–Strong dependence/suppliersMedium-Strong Friction: suppliers capture margin

Recommendation: Partner with a SUPPLIER

– –Sandwiched Business

Maximum friction on the margin rate

Abandon this application or find another position

within the chain

Business

++Position of Strength

Little friction effect on margin

Area of strategic autonomy, margin may be kept

+/–Strong dependence/clientsMedium-Strong Friction: clients capture margin

Recommendation : Partner with a CLIENT

Business DOWNSTREAM

Balance of Power DOWNSTREAM LINK/ business in favor of…

Residual Rent

Protecting an innovation upstream is a sine qua non condition


2.2.c Business Chain: Effects on the rent configuration

Residual Rent

BEFORE - - + +

Volume of the rent



AFTER - - + +

Volume of the Rent



Potential Rent

Residual Rent


2.3.a Substitution risk: technological dimension

Technological risk of substitution

Spectrum of alternative paths & options

narrow Very broad

Predictable Lead time of the innovation v/v the alternatives

HIGH Very low technological risk

++

Low technological risk

+

low

Medium-Strong technological risk

–

Major technological risk

– –

Residual Rent

GlacéGlacé


2.3.b Substitution risk: business dimension

Residual Rent

Usual Adoption Rate of an innovation within a Client-market

Usual Adoption Speed of an innovation within the

Client-market

Marginal Normal “All or nothing”

SlowBad Option

Zero Risk

Exhaustion

Medium Risk

Roulette

High Risk

FastWaste

Very Low Risk

Gestation

High Risk

Money-spinner

Very High Risk

See 2.1.a


2.3.c Summary: Substitutes & Friction effects on the rent duration

Risk & Friction effects related to substitution

Technological Risk: spectrum & level of advancement of the alternative technological options & paths

low HIGH

Business Risk: adoption propensity

of innovation by clients

HIGH

Low risk & friction effects

+

Robinson Crusoe

Very high risk & friction effects

– –

Overcrowded

low

Very low risk & friction effects

++

Hermit

Medium risk & friction effects

–

Bottleneck

Residual Rent


2.3.d Substitution: Effects on the rent configuration

Residual Rent

BEFORE - - + +

Volume of the rent



AFTER - - + +

Volume of the rent



Potential Rent

Residual Rent


2.4.a “Complementors”: How needful?Degree of requirement & difficulty in “gathering”

partners

low

HIGH

Harder & Better New Player

New Frontier

Meccano

New Deal

Full Monty

Zero need

Low need for complementors, possibly for distribution

Need to be accepted by the existing complementors

Strong need for existing & new complementors

Complementors are required,

essentially new one’s

Residual Rent

Go directly to pressure (2.5)

For a refresher on the ”types”, click

Protecting an innovation upstream is a sine qua non condition

PAC, OpenVoxPAC, OpenVox


2.4. The complementors: What power?Residual Rent

Degree of complexity of the partnership network to build or integrate (mayonnaise effect)

Very few different partners(1 ou 2)

Lot of partners(more than 6)

Impact of the complementors face to the innovator within the total value creation

Low Impact High Impact

Degree of power of the complementors, linked to their position of strength (size difference, damaging power, IP portfolio, monopoly position,…) compared to that of the innovator

Small, dispersed,without power

Big & Sturdy

Summary:

Degree of dependence vis à vis the complementors

Low High


2.4.c Summary: Complementors & Friction effects on the rent

Complementors

risk & friction effects

Degree of dependence vis à vis the complementors

low HIGH

Degree of requirement & difficulty in developing

partnerships

HIGH

Imperative need, butlow risk & friction effects

Divide to rule

Dangerous Position with strong friction effects

Amateur

lowPosition without any friction

effect on the rent

Egoist

Relatively weak position with unavoidable friction

effects

Caudine Forks

!

z

Residual Rent


2.4.d Complementors: Effects on the rent configuration

Residual Rent

BEFORE - - + +

Volume of the rent



AFTER - - + +

Volume of the rent



Potential Rent

Residual Rent


2.5.a 2.5.a Pressure, Regulation, Lobbying InstitutionalInstitutional risk &risk & possiblepossible effects on the 3 rent componentseffects on the 3 rent components

Type of effect on the rent

- The existing regulations or those likely to be put in place by the authorities under the pressure of the consumers & professionals lobbying will have a

Strong friction Effect

Non-existent or without any effect here

Strong amplification effect

- The official approvals (defined by regulation & controlled by professionals bodies) needed to run the business & market the innovation, have a




- The norms, fixed during special proceedings by key players of the industry and which are compulsory for all, have a




- The standard(s), which rule certain industries and are imperative for all irrespective of their wish, have a




Summary

Effect on the Rent volume

Effect on the Rent profit rate

Effect on the Rent duration




Non-existent or without any effect






Residual Rent

PAC, Bio-Rad, PAC, Bio-Rad, BactistopBactistop


2.5.b Institutional Risk: Effects on the rent configuration

Residual Rent

BEFORE - - + +

Volume of the rent



AFTER - - + +

Volume of the rent



Potential Rent

Residual Rent


Residual rent of the innovation: Which configuration?

duration

rate

volume

++– –

duration

rate

volume

++– –

duration

rate

volume

++– –

duration

rate

volume

++– –

duration

rate

volume

++– –

duration

rate

volume

++– –

Dwarf

Gadget

King of Petrol

Joker

OasisOptical Trap

Residual Rent


Part 3: Assess the appropriable rent

Analysis of the erosion effects on the residual rent since the innovation is inserted in its

competitive context & taking into account the competition position of the innovator

Appropriable Rent


Insertion in the direct competitive context:risks, frictions & rent capturing

• Attractiveness of the business (3.2):– Maturity stages and life cycle– Type of industry– Intensity of competition

friction effects on & possible capture of the residual rent

• The reaction of the competitors (3.3):– Occurrence and foreseeable intensity– Nature of the reaction friction effects on & possible capture of the residual rent

• The competitive situation of the innovator (3.4):– Scientific & business legitimacy of the innovator– Diagnosis of the innovator’s resources & competencies friction effects on & possible capture of the residual rent

• Appropriable Rent & Development/Valorization (3.5)

Appropriable Rent


3.2.a Maturity Stages: businesses are different in term of attractiveness Appropriable Rent

The business life cycle conceptWindow

of opportunity

Phases

IndicatorsGrowth RateGrowth PotentialNo. of CompetitorsCompetition TypeTechnology

Entry Barriers

Attractiveness

Emergence

Unstable GoodStrong

FragmentedFaltering

Weak, technological

High but danger

Start-up

StrongVery goodIncreasing

Not clear/visibleEvolving

Average, marketing is key

Very high

Growth

Very strongStill good

DiminishingConcentrationCrystallization

Strong & diverse

High

Maturity

Weak/stableZeroFew

CrystallizationFrozen

Very strong & complex

Limited

Decline

Zero or negativeNegative

FewOligopolyFrozen

Uninteresting

Zero

Large external players appear on the scene through the external growth route (acquisition) and begin to dominate the business

A standard or dominant design appears


3.2.b Industry Types: businesses are different

Sensitivity of the business to differentiation

(existence of “niches”, groups of competitors,varied solutions/offerings…

)

HIGH

Fragmentation

Numerous small competitors continuously entering & exiting Changing competitive positions Local markets, customized offers

Specialization

Very diverse offeringsDifferent groups of specialized

competitorsSeveral standards can coexist

low

Dead-end

Strong barriers to entry & exit Structural overcapacityNo player is profitable

Volume

Very similar offeringsEconomies of scale &

experienceA dominant design exists

low HIGH

Sensitivity of the business to volume(existence of economies of scale, volume effect and experience curve)

Appropriable Rent

The different possible The different possible application domains may belong application domains may belong to different industry typesto different industry types

GlacéGlacé


3.2.c Industry types: businesses are different in term of value & entry barriers

Sensitivity to differentiation

HIGH

Fragmentation Value: –Value: –

Entry and Development barriers areEntry and Development barriers are

weakweak

Specialization Value : + +Value : + +

Entry and Development barriers areEntry and Development barriers are

MEDIUM-STRONGMEDIUM-STRONG

Nature of the entry barriers•Access to distribution•Costs to acquire access to clients

Nature of the entry barriers• Transfer Cost• Access to specific resources• Patents, Brands

low

Dead end Value : – –Value : – –

STRONG entry barriers but the STRONG entry barriers but the business is not profitablebusiness is not profitable

Volume Value : +Value : +Entry and Development Barriers are Entry and Development Barriers are

STRONGSTRONG

Unattractive Nature of the entry barriers• Economies of scale & experience• Access to distribution• Norms, approvals, regulation

low HIGHSensitivity to volume

Appropriable Rent


3.2.d Rivalry & Intensity of competition:general attractiveness of a business

HIGH 1. Growth of the business low

HIGH 2. Concentration/distribution of market share

low

HIGH 3. Diversity of competitors / Differentiation low

HIGH 4. Perceived transfer costs low

low 5. Ratio fixed costs/variable costs HIGH

low6. Exit barriers & costs

HIGH

lowlow Intensity of Competition Intensity of Competition HIGHHIGH

Appropriable Rent

The present & potential degree of direct competition (players of the business) can be measured with the help of the following 6 criteria:


3.2.e Summary: Competitive Context, Attractiveness & Erosion effects

Intensity of competition:

- current (if the market exists) - or “ future” (in the case of a creation - innovation)

HIGH

FAR WESTStrong but unlikely to appear

friction effects

Better not fighting in such a highly competitive activity

BATTLE FOR THE FUTURE PARADISE

Strong and likely to appear friction effects

Better not fighting unless one masters the key success factors

(KSF) and has sufficient resources

low

AFTER THE BATTLEWeak and unlikely to appear

friction effects

Make the best of the present without betting on an interesting future

“PAX ROMANA”Weak-Medium and likely to appear

friction effects

The ideal situation for the innovation / innovator

low (Fragmented / Dead end) HIGH (Specialized/ Volume)

Value of the industry type

!

Appropriable Rent

This table allows the user to select the This table allows the user to select the most attractive segments and applicationsmost attractive segments and applications


3.2.f Competitive Context: Effects on the rent configuration

BEFORE - - + +

Volume of the rent



AFTER - - + +

Volume of the rent



Residual Rent

Appropriable Rent

Appropriable Rent


3.3.a Competitor’s Reaction: occurrence & predictable intensity

Value & attractiveness of the business (substitution & market creation)

Type: Dead-end/ Fragmented

Type: Volume or Specialization

low High

Existing Actors

(substitution only)

It’s a core business for the actor High

Strong and

probable reaction

Very strong &

highly probable reaction

It’s a marginal business for him low Unlikely weak / No

reaction Very limited reaction

Potential New entrants (substitution & creation)

Substitution risk: Overcrowded &

BottleneckHigh

Weak & probable reaction

Very strong and likely reaction

Substitution risk: Robinson Crusoe &

Hermitlow Unlikely weak / No

reactionStrong but unlikely

reaction

Appropriable Rent

See 2.3.c

Within the same application sector, if the Within the same application sector, if the competitors react differently, it means that competitors react differently, it means that this sector consists of several different this sector consists of several different

businesses/segments/marketsbusinesses/segments/markets

IRSE300IRSE300

See 3.2.b


3.3.b. Competitor’s reaction: of what kind?

Value of the Residual Rent

low Strong

Existing Actors

(substitution

only)

Exit barriers / Costs

High Block1) Block2) Copy or Imitate

low Uninteresting (no cause for alarm)

Creative imitation or Disqualify

Potential New Entrants

(substitution & creation)

Entry barriers / costs

HighUnattractive(contempt)

Disqualifying Innovation

low Creative imitation Pure copy imitation

Appropriable Rent

See 3.2.cIRSE300IRSE300


Appropriable Rent

3.3.c Competitor’s reaction, Friction effects and recommended development strategy

Nature of the competitor’s reaction

Unattractive/ Uninteresting

Block Pure Copy Creative ImitationDisqualifying Innovation

Latent time before a reaction = Time available to the innovator low HIGH

Command over resources from identified competitors

F (financial)

T (technological)

L(legal)

HIGH

No friction hence no risk

Very high risk of friction

Find a white knight or sell out

Very high friction risk Reaction is a function of the competitor’s profile

F +T –J +

License-out / Share

F +T +J –

Block

F –T +J +

Find a sponsor/patron to

beat the competitor

low

Friction possible but limited risk

Overcome obstacles if enough means

Case of innovations with limited rent duration (dwarf, gadget, optical trap)

"Don't protect, take the money and run"

F +T –J –

The competitor is a possible

sponsor/benefactor

F –T –J +

Strengthen the technology & attack legally

F –T +J –

Minefield, game of go? => IP strategy

IRSE300IRSE300


3.3.d Competitor’s reaction: Effects on the rent configuration

BEFORE - - + +

Volume of the rent



AFTER - - + +

Volume of the rent



Residual rent

Appropriable rent

Appropriable Rent


3.4.a Competitive Situation of the innovator: Scientific and Business legitimacy

LEGITIMACY

BUSINESS (growth, reputation and command by the company of the business

in question)

low HIGH

SCIENTIFIC (academic

reputation and the precedence of the R&D team in the

concerned scientific domain)

low

Red SignalUnable to valorize its innovation autonomously, the SNIC has to license or sell out its innovation.

Move to 3.5

Orange Signalthe weak scientific legitimacy

leads to an in-depth diagnosis of the company’s position on the 1st part of the 2 tables that follow.

HIGH

Orange Signalthe weak business legitimacy leads to

an in-depth diagnosis of the company’s position on the 2nd part of

the 2 tables that follow.

Green SignalGreen Signalthe strong scientific & business

legitimacy leads to a diagnostic of the company’s position only on the 3rd part of the 2 tables that

follow.

Appropriable Rent

IRSE300IRSE300BinemBinem


3.4.b Resources & Competencies of the SNIC

Next Step

Does the SNIC hold the technological resources & competencies to get the innovation

defendable & durable?

Yes NoIt doesn’t possess them

They are not sufficient to sustain the innovation

Can it acquire them or develop them internally ?

Yes No

Is a partnership with some technological “complementors”

possible ?

Yes Zone of strategic choice

Partnership necessary

No Inevitably alone External Development

Can it procure them or have access to them ?

Technological entry barriers

Emerging industry

Appropriable Rent

STOP, license STOP, license or sell outor sell out


3.4.c Resources & Competencies of the SNIC

Next Step

Does the SNIC have the “business” competencies that correspond to the application

domain KSF?

Yes No

Can it acquire them or develop them internally?

yes no

yes Zone of strategic choice


Is a partnership with business “complementors”

possible?no Inevitably alone External

Development

Entry & survival business barriers

Industry in a start-up phase

Appropriable Rent



3.4.d Resources & Competencies of the SNIC

Next Step

Can the SNIC gather the magnitude of resources required to establish its innovation in a successful and

lasting way?

Yes No

Can it find “investors” to finance the needed resources ?

yes no

Is a partnership with competitors possible ?

yes Zone of strategic choice


no Inevitably alone External development

Profitable development barriers

Industry in a growth phase

Appropriable Rent



3.4.e Competitive position of the SNIC & Effects on the rent configuration

BEFORE - - + +

Volume of the rent



AFTER - - + +

Volume of the rent



Residual Rent

Appropriable Rent

Appropriable Rent


3.5 Summary: Appropriable Rent & Development/Valorization Strategies

Magnitude of the rent appropriable by the SNIC

HIGH Autonomous, strategically desired and possible, in partnership if

useful

License or sell-out or in cooperation…

depending on the possibilities

low

Autonomous but purely tactical

Abandon, license or sell-out…

depending on the volume of the residual rent

Development StrategyDevelopment Strategy

low High

Relative (for the SNIC) amount of investment needed to industrialize and launch the innovation

in the market

Appropriable Rent


Rent appropriable by the innovator: which configuration ?

duration

rate

volume

++– –

duration

rate

volume

++– –

duration

rate

volume

++– –

duration

rate

volume

++– –

duration

rate

volume

++– –

duration

rate

volume

++– –

Dwarf

Gadget

King of petrol

Joker

OasisOptical Trap

Appropriable Rent


Part 4 : Determine the Development & Intellectual protection mode of the SNIC’s innovation

Recommendations for a development/valorization & intellectual protection strategy of the innovation

depending on its rent configuration

Strategic Choice


Return End Part 1 End Part 2 End Part 3Return End Part 1 End Part 2 End Part 3

For a Dwarf configuration

Stand alone Stand alone Innovation Innovation

Market exists or to be created

Recommendations

Development: possible but not very attractive autonomous development. Abandon

Protection: Without any real interest. However to safeguard against the possible appropriation of the innovation by a third party, it is advisable to: 1) publish the invention (making it non -patentable), 2) in a confidential medium (so that the competitor’s chances of discovering it and exploiting it are weak) and 3) locally or abroad.

Strategic Choice

Attractiveness: zero in absolute terms, very low for a SNICAttractiveness: zero in absolute terms, very low for a SNIC

The innovation is : The innovation is : stand alone stand alone system basedsystem based



For a Dwarf configuration

System-basedSystem-based

InnovationInnovationExisting markets Markets to be created

Recommendations

Development: Abandon, except for the Meccano type, if the innovation convinces the architect of the system

Protection: General case: In order to avoid all likely appropriation, publish the invention in a confidential medium, locally or abroad. Meccano case: file a national “smoky screen” patent, extend it using the PCT procedure and sell it off to the architect; if not possible, don’t maintain the patent.

Development: Abandon (not worth developing given the risks and chances of success)

Protection: Not worth it at all. However to safeguard the innovation, 1) publish the invention (making it non -patentable), 2) in a confidential medium (so that the competitor’s chances of discovering it and exploiting it are weak) and 3) nationally or abroad.

Strategic Choice



For a Gadget configuration

Stand alone Stand alone InnovationInnovation


Recommendations

Development : an interesting configuration of a quick & autonomous development for a SNIC

Protection : The natural rent duration being short, only a kind of “smoky screen” protection will be targeted. File a national patent (+ brand & design if possible), geographically extended to attractive countries through the “PCT” (Patent Cooperation Treaty) procedure. Don’t validate the application to most of these countries 30 months after the first legal patent application; possibly forget to maintain the patent.

Strategic Choice

Attractiveness: low in absolute terms, medium for a SNICAttractiveness: low in absolute terms, medium for a SNIC

The innovation is : The innovation is : stand alone stand alone system-based system-based



For a Gadget configuration

System based System based InnovationInnovation


Recommendations

Development: a difficult configuration for a cooperative development – the rent duration being short, a rapid reaction is needed but quickly creating and running a network is a rather delicate affair.

Protection: The rent duration being weak, only a “smoky screen” kind of patent is sought. File for a national patent (+ design & brand if possible) with extensions suing the PCT procedure for attractive countries. At the end of the 30 months period (before the national procedures) and depending on the existing network, validate or abandon, one by one the “patented” countries and even don’t maintain the patent. Accept the principle to mix/cross licenses with “complementors” to favor the emergence of the new system (dominant design).

Strategic Choice


Return Return EndEnd PPart 1 art 1 EndEnd PPart 2 art 2 End End PPart 3art 3

For a Oasis configuration



Recommendations

Development: Ideal configuration for a SNIC autonomous development strategy, but a partnership could be interesting if it is generating an amplification effect.

Protection: Protection is crucial: compulsory patent and/or secret, closely related protection on the basis of codified knowledge, possibly complementary protection (design, brands…). Quickly extend the national patent through the “PCT” procedure to a maximum number of countries; at least to the innovator country, Europe, USA (possibly apply for a direct patent here to avoid interference procedures) and Japan. At the end of the 30 months legal period, validate and reposition only in the countries that are interesting.

Strategic Choice

Attractiveness: medium in absolute terms, high for a SNICAttractiveness: medium in absolute terms, high for a SNIC

The innovation is : The innovation is : stand alone stand alone system-based system-based


Return Return End PEnd Part 1 art 1 End PEnd Part 2 art 2 End P End Part 3art 3

For an Oasis configuration

System-based System-based InnovationInnovation


Recommendations

Development: Ideal configuration for a cooperative development, assuming the system leadership in the case where the degree of dependence vis-à-vis the “complementors” is weak and transferring it to (a) key and dominant partner(s) in the opposite situation.

Protection: It is crucial: compulsory patents and/or secrets, closely related protection on the basis of codified knowledge, possible complementary protection (brands, designs…). Make use of mixed/crossed licenses with complementors to favor the emergence of a new system. Extend the national patent through the PCT procedure to a maximum of countries (118 possible); at least to the innovator country, Europe, the US (possibly apply for a direct patent here to avoid interference procedures) and Japan. At the end of the 30 months period, validate and reposition only in the countries that are interesting.

Strategic Choice


Return Return End End PPart 1 art 1 EndEnd PPart 2 art 2 End End PPart 3art 3

For an optical trap configuration


Existing Market Market to be created

Recommendations

Development: Sell out or license out – don’t get involved in this situation

Protection: A “luring” patent with a possible anticipated publication demand, followed by a local real patent application, extended with the PCT procedure to a maximum no. of countries (a direct application for the US). 30 months to negotiate licensing agreements and to protect, in the national phase of the PCT, only the countries to be covered (eventually use a European patent); if no agreement within the 30 months abandon the patent.

Development: In a tactical first phase, autonomous or cooperative development (start, create a niche and develop a brand, prove), then very quickly sell out or license out; if not possible abandon

Protection: A “luring” patent with anticipated publication asked, followed by a local real patent application, extended by the PCT procedure to a maximum no. of countries. At the end of the 30 months period, before the national phase of the PCT, validate only in the countries concerned with licensees; abandon in case of no agreement

Strategic Choice

Attractiveness: medium in absolute terms, low for a SNICAttractiveness: medium in absolute terms, low for a SNICThe innovation is : The innovation is : stand alone stand alone system based system based



For an optical trap configuration



Recommendations

Development: don’t get involved in this – license or sell out options are compulsory.

Protection: A “luring” patent with anticipated publication asked for; followed by filing a real local patent, extended by the PCT procedure to a maximum number of countries (direct filing for the US). 30 months to negotiate licensing agreements and to protect, in the national phase of the PCT, only the countries to be covered (eventually use a European patent); if no agreement within the 30 months abandon the patent.

Development: Use the cooperative option in the beginning (to set the global offering, create the niche and the standard, prove) and then very quickly license or sell out to a major “complementor” or competitor; else abandon.

Protection: A “luring” patent with anticipated publication asked for, followed by a real local patent application with geographic extension to a maximum no. of countries with the PCT procedure. At the end of the 30 months period (in the PCT national phase) validate only the countries concerned with licensees; abandon in case of no agreement.

Strategic Choice


Return Return End End PPart 1 art 1 End End PPart 2 art 2 End End PPart 3art 3

For a Joker configuration

Stand alone Stand alone Innovation Innovation


Recommendations

Development: Don’t touch…unless evidence is required to be given. Immediately sell out or license out.

Protection: Super protection is compulsory: a series of patents (& complementary protection if necessary & useful) covering a maximum of applications and a maximum of countries thanks to the PCT procedure (118 countries). Direct filing in the US. Allocate partial licenses or sales.

Development: Start alone or with partners to prove and valorize (market share and brand). In case you can’t make it big, license or sell out.

Protection: Super protection is compulsory: a series of patents (& complementary protection if necessary & useful) covering a maximum of applications and a maximum of countries thanks to the PCT procedure. Direct filing in the US. Allocate partial licenses or sales.

Strategic ChoiceAttractiveness: strong in absolute terms, limited for a SNICAttractiveness: strong in absolute terms, limited for a SNIC

The innovation is : The innovation is : standalone standalone system-basedsystem-based



For a Joker configuration

System based System based Innovation Innovation


Recommendations

Development: Stay away…license or sell-out immediately to a “big” player (generally among the complementors)

Protection: Super protection is compulsory: a series of patents (+complementary protection if needed & useful) covering a maximum of applications and a maximum of countries thanks to the PCT procedure (118 countries). Direct filing in the US. Allocate partial licenses or sales.

Development: At the start, to prove one’s self, develop in a partnership (volume, standard, network of complementors), then license or sell out if one cannot make it “big”. Protection: Super protection is compulsory: a series of patents (+complementary protection if possible & needed)) covering a maximum of applications and countries thanks to the PCT procedure. Direct application for the US. Allocate partial licenses or sales.

Strategic Choice


Return Return End P End Part 1 art 1 End End PPart 2 art 2 End P End Part 3art 3

For a King of Petrol configuration



Recommendations

Development: Don’t touch…unless evidence is required to be given. Immediately sell out or license out.

Protection: Super protection is compulsory: a series of patents (& complementary protection if necessary & useful) covering a maximum of applications and a maximum of countries thanks to the PCT procedure (118 countries). Direct filing in the US. Allocate partial licenses or sales.

Development: Start alone or with partners to prove and valorize (market share and brand). In case you can’t make it big, license or sell out.

Protection: Super protection is compulsory: a series of patents (& complementary protection if necessary & useful) covering a maximum of applications and a maximum of countries thanks to the PCT procedure. Direct filing in the US. Allocate partial licenses or sales.

Strategic Choice

The innovation is : The innovation is : stand alone stand alone system based system based

Attractiveness: strong in absolute terms, limited for a SNICAttractiveness: strong in absolute terms, limited for a SNIC


Return Return End End PPart 1 art 1 End End PPart 2 art 2 End End PPart 3art 3

For a King of Petrol configuration

System based System based InnovationInnovation


Recommendations

Development: Stay away…license or sell-out immediately to a “big” player (generally among the complementors)

Protection: Super protection is compulsory: a series of patents (+complementary protection if needed & useful) covering a maximum of applications and a maximum of countries thanks to the PCT procedure (118 countries). Direct filing in the US. Allocate partial licenses or sales.

Development: At the start, to prove one’s self, develop in a partnership (volume, standard, network of complementors), then license or sell out if one cannot make it “big”. Protection: Super protection is compulsory: a series of patents (+complementary protection if possible & needed)) covering a maximum of applications and countries thanks to the PCT procedure. Direct application for the US. Allocate partial licenses or sales.

Strategic Choice


Development: Confidentiality, Ownership, Protection

During all the development phases of the innovation (conception, prototype, versioning…) & especially if the innovation is developed in cooperation with partners, the management of confidentiality, ownership and protection of the results is crucial for appropriating the maximum rent linked to the innovation.

Legal matters related to IP being outside of the scope of this model , we recommend the user to consult an IP expert, but the following points should be kept in mind:

– Confidentiality: confidentiality agreements, Non Disclosure Agreement (NDA) – Traceability, origin, dating of results

Evidence/Proof : laboratory journal (data processing or classic), registration of the design/source code of a software in a legal office,…. & all other methods of written proof

– Ownership of results: inventions coming from salaried vs independent employees, indications of the inventors, possible co-ownership, contract for cooperative development


Innovation Intensity & Technical Imitability Innovation intensity of the principal application domain of the innovation:

It is measured on the basis of 2 criteria:• The frequency & (using inverse correlation) the life time (duration) of the innovation

taken in a broad sense (new process, products, formulas,…) • The frequency, relative to other application domains & an “estimated “all businesses”

average, of the patents filed in the concerned application domain

Technical Imitability of the Innovation:Linked to the natural technical characteristics of the innovation (the more “complex” the innovation, the more difficult to copy and hence the longer the duration), it can be estimated using the following 3 criteria: its non-transparency: the innovation will be that much easier to sustain if it is the result of a combination of complex techniques and is based on specific and difficult to identify “competencies” (know how). It will obviously be easier to copy if the resources on which it is based are easy to spot and the competencies on which it rests are public and widely disseminated.

its non-accessibility: the innovation will be less sustainable if it is put in products with very few intangibles that are easily accessible in the market (ease of purchase and reverse engineering) ; it will be easier to sustain if the intangible part (integrated and difficult to access software for example) in the innovative offering is higher and reverse engineering is not possible or not effective.

its technological “lead”: the innovation will be more sustainable if it is genuinely new or a technological breakthrough and if it leaves quite no place for further improvement, to avoid smart copies. On the contrary, it will be so much easier to copy if it is not very “original”, not well mastered and leaves lot of room for improvement.


Legal Imitability of the Innovation

To judge the legal imitability of an innovation, it is worth to measure the quality of the protection (or non-protection) that the innovation can benefit from in terms of rights (patents in particular). 2 dimensions can be used for this:

• The “patentability” of the innovation which is linked to the fact that the technical phenomenon or object that makes up the innovation should be:– An “invention”, I.e. “that contributes to the technological state of art”– Untouched by any possible exclusion from patenting– Related to an inventive activity (problem/solution, original lay-out, overcoming a

misconception, etc)– Likely to have an industrial application– New at the time of filing the patent– And “clearly and sufficiently described”

• The scope (extent) and validity of the possible claims concerning the innovation that can cover a wide range of dimensions going from :

powder for eyes patent limited limited patent engrossing or princeps patent in applications favoring the duration multiple patent patent

Easy to copy Difficult to copy


Adoption Propensity of an InnovationThe client-markets enjoy a “natural” receptivity face to an innovation that differs according to 2 criteria:• The frequency of innovation in a client-market or, in academic terms, innovation intensity of a market appear

to be a pertinent indicator to assess the speed and rapidity with which the market-client adopts an innovation. For methodological simplicity, we will distinguish 2 cases of innovation intensity: low (reticent to adopt innovations market) and (rapid to adopt innovations market)• The adoption or penetration rate which illustrates the degree of potential diffusion of the innovation in the

market under consideration and can be represented through an innovation diffusion curve.The normal innovation distribution curve takes the form of a flattened “S”. Right at the beginning, only the “technological innovators” and “early adopters”, who account for a very small portion of a market (1-5%) are seduced. Then the innovation successively gains the “pragmatics” and the “conservators” before it gradually stagnates with the “skepticals” and “laggards”. We can further classify this situation into 2 cases:

– “All or nothing” markets where the innovation is either a complete failure or is quickly capturing the market depending on some recognized opinion leaders

– Markets where innovations can subsist even when remaining marginal (fragmented markets without norms)

The 3 curves can be graphically represented as follows :Diffusion Curve

All or nothing

Normal

Marginal

Rate of penetration

Time


Assess the Client Perceived Utility Value (CPUV)Perceived benefits: 3 types 1- Relative advantage, directly linked to the level of improvement brought about by the innovation & perceived by the client. In the case of substitution, the potential client will compare the differential of perceived value & the differential of anticipated price between the reference offering & the innovation which aims to replace it. In the case of creation, the value lever is linked to the resolution of a client high unsatisfaction: overcoming a constraint, saving time, simplifying life, offering new options/possibilities2 - Simplicity to understand, ease of use, possibility to test in small quantities and visibility of the results are indicators which are clubbed together under the term transparency3 - Compatibility measures the consistency of the innovation with the existing practices, in terms of competence, equipment, norms and earlier systems.

Perceived sacrifices: 3 types1 - The anticipated price level which measures the financial effort that the consumer estimates to achieve when buying the product. It is always relative to the perceived value or estimated cost. 2 - The perceived risk linked to the adoption of the innovation which corresponds to the risk of making the wrong choice. This risk is particularly high in case of system innovations (modification of the standard, network externalities)3 - If he chooses to adopt the innovation, the potential client may be required to renounce a series of previous choices . These have been clubbed under the name of “transfer costs” and will be take place only in case of a substitution-innovation.

‘


Life Cycle of a Business

Phase Emergence Start-up Growth Maturity Decline

Strategy

The keyDominantFunction

InnovateTechnology

Improve / targetMarketing

Grow / DominateDevelopment

Make ProfitableManagement accounting

“Milk” Finance

Key Success Factors

- Work out an innovative

offering even if it is imperfect- Succeed in

conducting beta-tests

- Capture the early adopters

-Increase the value of the offering by

continuous improvement

-Target and capture the most receptive

segments - Create a network

and a brand- Finance the growth

- Manage the costs - Cover the market

(segments & countries)

- Invest in marketing & production- Finance the

growth

- Manage the costs & the equipment - Rationalize the

range - Extend the

offering and the geographical reach

- Finance the working capital

- Reduce the range

- Select the clients- Look for exit

options

Entry Barriers

Weak, technology oriented

Medium, stress on marketing

Strong, diverse and high

Very high in quantity/complexity Of no interest


Entry & Development barriers

This essential concept, which enables to characterize and understand the competition intensity within an industry, is based on the “barriers to entry” concept coming from Industrial Economics. The level of these entry barriers & rights can be assessed by evaluating the business using the 6 criteria that follow:

1. Existence & level of cost and scale economies2. Existence & importance of transfer costs, including those linked to the

existence of differentiated offerings from players of the industry (loyalty effect)3. Difficulties in accessing the distribution network4. Existence of and difficulty to access rare & specific business resources5. Existence and value of patents and brands6. Importance & difficulty in obtaining norms, approvals and regulations

Appropriable Rent


Rights & Exit Barriers

This notion is key to understand that some industries, though rather unattractive, are nevertheless and perpetually victims of fierce competition. The reason is that irrecoverable costs are very high and it usually costs more to exit than to continue operations. The magnitude of these exit barriers & rights can be estimated by assessing the industry using the following 6 indicators:

1. Existence & importance of business specialized assets2. Level of fixed costs to exit3. Existence & importance of strategic inter-connections between the business

and other businesses within the player portfolio 4. Government restrictions to exit 5. Union restrictions to exit 6. Emotional obstacles (attachment syndrome - initial business difficult to quit)


GLOSSARY BBarriers to EntryObstacles which limit and/or prohibit access to a particular industry. These barriers may be technological, regulatory (norms…), economic (critical mass…), human (access to rare competencies),… and finally result in the financial “entry ticket”. E.g.: authorization to run a pharmacy, norms for the security equipment industry, critical size in the cement industry…Barriers to ExitObstacles which limit or prohibit a player from exiting a particular industry. When the exit barriers and the level of irrecoverable/sunk costs are very high, it is often less expensive for a player “to stay in the business rather than to quit it”. E.g.: Equipment of a shipyard is almost impossible to convert/transform/reuse, the “this or nothing” dilemma faced by companies operating in only one business…Business (equivalent to the terms - industry, sector or domain of activity)All the products/services - and companies producing these services - that are characterized by the mastering of a specific set of competencies (or Key Success Factors). A business corresponds neither to a sector as defined the SIC (Standard Industrial Classification) code in the US (too broad) nor to market segment (too narrow). E.g.: project management software application packages, aromatic compositions industry, specialized DIY distribution centers. Business ChainAll the economic stages through which raw material is transformed to comer up with an end product/service that is destroyed by a final consumer. All companies fit into a specific business chain in a link surrounded with upstream and downstream links. Some use the words value chain to underline the process of value creation/distribution that characterizes a business chain.E.g.: the wood business chain, food & agribusiness chain


GLOSSARY C

Competition (internal rivalry)Used in the classical sense of the term, it means the rivalry that exists between players of the same industry or business.Competitive rivalry or intensityIt measures the degree of competition within a sector. E.g.: Competitive rivalry is specially high in case of the industrial cleaning sector, very low in case of aromatic raw materials and normal in the case of beauty products. Competitive AdvantageEnhanced control over one or several Key Success Factors (KSF) of an activity (as compared to the competitors). A competitive advantage should be symbolized by a profit rate superior to the average of the activity under consideration. E.g.: One of the competitive advantages of the fast food chain Mac Donald’s is its capacity to identify and select the best geographic locations for its outlets.Competitive position/situation This indicator evaluates the quantitative and qualitative robustness/strength of a company, as compared to that of competitors, on the KSF of a given business.ComplementorAny player whose offering complements the one of another company that hence may propose a complete/global offering that is valued much higher by final clients than if it were a sole or separate solution. E.g.: CD’s are required complements for a CD player, a computer is a useful complementary object for a digital camera.


GLOSSARY C

Concentration It is linked to the distribution of market shares between the companies within a same business. Generally, the fewer the players, the greater the concentration. Technically, the level of concentration is measured through an indicator - C2 or C5 for example - that computes the total market shares owned by the - 2 or 5 - main players. E.g.: The C2 of the world’s soft drink industry is greater than 60% (Pepsi & Coke).Concentration (relative) It measures the level of concentration or distribution of market shares between 2 businesses which are adjacent links in the same business chain. E.g.: The number of wine producers are very high and hence diluted when compared to the 5 central purchasing units of the French hypermarket chains. The relative concentration is undoubtedly in favor of the purchasing units of these mega food stores. Configuration It represents the positioning of an innovation on each of our 3 rent components (volume, profit rate and duration).Costs (Fixed)Costs which are independent of the quantity produced and insensitive to the variation of the activity level. E.g.: depreciation costs for an equipment or building, overhead costs.Costs (Variable) Costs which vary in proportion to the level of activity. E.g.: raw materials consumption, remuneration paid to distributors.


GLOSSARY DDevelopment/ValorizationThe way a company may generate and capture the financial value of the innovation it developed and holds. This valuation may concern:• Internal development (company markets the innovation autonomously)• Cooperative development (development with the help of other companies)• External development (licensing or sell-out to a third party to exploit the innovation).Autonomous DevelopmentThe company develops the innovation itself. E.g.: Polaroid and its instant photo (a well protected innovation).Co-operative DevelopmentThe company exploits the innovation, sharing the rent with one or more partners who support the company in the technical and commercial development of the innovation. E.g.: Sony & Kodak who came together (and share all their patents related to this technology) to develop and launch a new CD format on the market.License out DevelopmentThe owner of the innovation grants a license to one or several parties to exploit it; in return, he receives a remuneration. This license is generally limited in time and space. E.g.: Moreno and his miracle innovation: smart cardsSell-out DevelopmentThe innovation rights are sold to a third party who exploits it against a remuneration.E.g.: The test to detect the Bovine Spongiform Encephalitis (mad cow) was discovered and protected by the French CEA and sold to a major American player within the test industry.


GLOSSARY D-EDifferentiationThe positioning used in the market to distinguish one’s offering in a significant (perceived in the entire market or in the parts concerned), “valuable” and defendable way from the reference offering, the one proposed by the main players. E.g.: The French internet service provider “Free” (purging differentiation), Hilti the world N°1 company in fastening systems for the construction industry….Diffusion Geographic Diffusion: Assesses the geographic scope in which the innovation may pretend to be spread and possibly marketed.Business Diffusion: Assesses the number of possible application domains that the innovation may concern and invade.Dominant design or Reference offering Standard within an industry that is totally or partially shared by the main players of the business. E.g.: To the detriment of DivX, the DVD has become the dominant media storage solution for individual films.Economies of scaleDecrease of the total unit cost of a product thanks to fact that the total fixed costs can be spread over a larger number of units. The greater the fixed costs, the larger the impact of the scale economies. It is often referred to the “critical size”, the minimum size to be achieved in order to manufacture/sell within competitive costs. E.g. The petrochemical industry is strongly dependant on economies of scale, the automobile and aeronautic industries are other examples.Entrant (New)A new player penetrating an industry that is not its usual business. E.g.: Virgin, which is better known for its record label, launches an airline company called Virgin Atlantic; BIC, the number one pen maker, diversifies into lighters, razor and perfumes.


GLOSSARY E-I

Environment All the elements and factors that influence the competitive game in a given business (for the experts refer to the revisited Porter’s 5 forces model)Experience curve/effectThe process by which the total unit cost of a product is reduced by a fixed percentage each time its accumulated production is multiplied by two. This results from the learning curve, economies of scale and a constant quest to improve overall costs. E.g.: most electronic and software products witness experience curve effects between 25 and 50%.Friction/Erosion EffectsSimilar to physics and mechanics, this phenomenon represents the loss of financial value a product/service experiences when it passes through the different dimensions of the competitive game (the 2 terms shall be used interchangeably).Game of GO Originally a Chinese strategy game which aims to occupy a territory larger than that of the adversary. In case of intellectual property, this means filing several parents spread over a domain of business in order to enjoy a maximum bussiness coverage.Imitation (Creative)Intelligent copy of an existing innovation which improves certain characteristics of this innovation. E.g.: In the 60-70’s, the Japanese companies were excellent creative copiers that were able to launch electronic products with better technological functionalities/options.


GLOSSARY IIndustrial/Intellectual Protection (IP)Intellectual protection includes industrial property (patents, brands, designs, models, software applications) and copyrights. These IP rights have to be legally registered within the local (possibly European) IP organization. Industry Type A particular class of competitive system that characterizes an industry. When mixing the sensitivity of a business to both differentiation and volume, 4 industry types appear: fragmented, dead-end, specialize and volume.E.g.: the restaurant business is fragmented, perfumes is a specialized industry and the CD players business is pertains to the volume type.Innovation (Disqualifying)An innovation that put offside, thanks to its new characteristics, the existing products/technologies. E.g.: the innovation of the CD-Rom disqualified the audio cassettes.Innovation (Standalone)A technological innovation that may function autonomously or in isolation. E.g.: An anti-bacteria pillow is a standalone innovation.Innovation (System)A technological innovation that cannot function alone. In order to succeed, it needs complements and/or needs to be inserted in a system. E.g.: a cell phone is are a innovation which require hardware, software, plus operators,etcInnovation IntensityAn industry with a high innovation intensity is one that regularly witnesses the launch of new products, the filing of new patents,….and in which the life span of the products is extremely short. E.g.: the food/agribusiness and the electronic industries have a high innovation intensity.


GLOSSARY K-L

Key Success Factors (KSF)A specific mix of competencies that any company has to master within a business in order to run it efficiently and be profitable within the competitive context.Lead-time It measures the period during which the innovator will benefit from an exclusive business situation and a technological monopoly in the application domain(s) of the innovation. E.g.: In the case of Internet services, the lead time was ridiculously low because the innovation, characterized by a very low technological level, could easily be copied; on the other hand, the electronics player Sony often benefits from a lead time of over a year for many of the new & original products it launched.Learning CurveThe process of acquiring certain competencies may allow a significant productivity improvement resulting from performing repetitive tasks.LegitimacyBusiness Legitimacy: A company perceived to be legitimate is one that has taken its own place within an industry thanks to the expertise it progressively acquired and accumulated in it.Scientific legitimacy: In this case, the expertise is based on scientific know-how and reputation. Life cycle of a businessJust like a product, a business goes through different phases during its life: emergence, start-up, growth, maturity, decline. Compared to the product life cycle, the maturity phase is much longer for a business. E.g.: The bioinformatics is still in a start-up phase, the automobile industry experiences the maturity stage while digital photograph is booming.


GLOSSARY M-RMargin rate Profitability indicator of a company over a given period. Different ratios can be used to estimate this margin rate: ROCE, ROI, operating margin… MinefieldAn area that contains explosive mines, beset with hidden problems…In IP strategy it means filing multiple patents to protect an innovation from being copied. E.g.: strategy used in the case of smart cards.Niche A clearly identifiable (thanks to operational criteria) market segment requiring a specific offering. E.g.: designing and selling outfits for the “tall & huge” (plus sizes) persons, a segment for whom ready to wear outfits are not suitable.NormReference, generally measured as figure or rate, usually practiced in an industry; specific rules applying to all the members of the industry. E.g. : The norm for a listed company as far as ROI is concerned is 15%.Portfolio of ActivitiesIt groups and represents all the distinct business activities managed by a company. Rent Periodic and guaranteed revenue (generally) generated by the possession of a good, an asset or capital. Several kinds of rent exist depending on the school of thought (monopoly rent, entrepreneurial rent, scarcity rent…). In our model, the rent is linked to the exclusive ownership and exploitation of an asset that corresponds to the technological innovation.


GLOSSARY R(Appropriable) Rent (equivalent to net rent) In our model, the value of the rent that a company can capture and keep for itself once all the friction and erosion effects arising due to environment and competition have been accounted for.(Potential) Rent (equivalent to initial rent) Irrespective of the holder of the innovation the “a priori” rent value, which is linked to the nature of the innovation. (Residual) Rent (equivalent to intermediate rent) Value of the potential rent once the friction effects linked to the insertion of the innovation in its environment are taken into account. Replicability / imitability (technical)This indicates the degree of a technical imitation/replication of an innovation. E.g.: The chances of copying the BiNem® technology used in case of LCD flat screens is low since it would require a group of at least 50 highly qualified people to work full time on a similar project for a minimum of 2 years…Risk (Institutional)This represents the potential danger related to regulatory texts, lobbies and professional norms for an innovation. But, reciprocally, these institutional elements can work as a true catalyst for an innovation. E.g.: the regulation/norms about CO2 emission favored the emergence of new combustion processes, new fuels…Risk (Business) In the model, this represents the dangers and/or difficulties associated with the adoption propensity of target clients vis à vis innovations in general. E.g. : Pathology laboratories are very fond of innovation, with an “all or nothing” type of reaction.


GLOSSARY R-SRisk (Technological) It represents the potential danger that comes from players working on alternative technologies to the one used by the innovator. It can be assessed through the number and the value of the alternative options proposed and their degree of advancement compared to the innovation.Sensitivity to differentiation This measures the magnitude of possibilities for the players of a business to significantly and durably differentiate their offering. The criteria to be taken into account are : existence of different groups of solutions and competitors, existence of protected niche,…E.g.: As opposed to the floor cloths business, that of beauty products and care is very sensitive to differentiation…Sensitivity to volume This is linked to the existence (or absence) of economies of scale and size in an industry. A business is considered sensitive to volume if a strong co-relation between size and profitability of each of the players exits. E.g.: the floor cloths business is extremely sensitive to volume, as that of perfumes and electronic components.(potential) Size of the client-market The turnover that a market may reach when it is fully developed/exploited.(real) Size of the client-marketTurnover currently achieved within this market.SNICSmall and/or New Innovative Companies: all small, medium sized and/or new companies that develop technological innovations and/or are likely to benefit from intellectual property protection (patents, brands, designs, models, copyrights etc.)


GLOSSARY S-W

Substitute

Product/service which fulfills the same needs and has the same utility functions as the reference offer in a business. E.g.: Digital snaps substitute silver halide photo, camcorders are substitutes for cameras.

Transfer costs

Sum of the costs that are incurred to move from one supplier to another one. These are not just financial costs (time cost, inhabits change cost…) and their perception is more important than their reality. E.g. : changing laboratory equipment which requires drafting a new manual, putting in place a new process, a new training of the staff…

White Knight

This term which has been borrowed from the finance world (used during hostile acquisition bids) and embodies a company which helps SNIC defend itself against a competitor’s attack.

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