Capital Ideas

One of the most dominant criteria used to judge a new product and technology innovation is whether it fits with the corporation’s strategy, core competencies or operating philosophy.  Most companies have some explicit or implicit measures of relevance to judge a new product, process or technology innovation. Although this criteria is expressed in different ways, it usually asks the question, “Does this new idea—if implemented properly and effectively—fit”?

There are ample reasons for asking the question of corporate fit because eventually the corporation—or one of its business units—will need to adopt, nurture and raise the new born innovation if it is to succeed. And the adoption, nurture and rearing of a new born creates a demand on resources; and it competes for management time and attention against existing operations. So at first glance, asking the question of corporate fit makes sense.

Yet a growing number of companies are recognizing that the question of fit may have been applied too narrowly in the past. Many of these companies are now viewing their competition in different ways. Instead of viewing them as simply threats, many companies are seeing their competitors as potential sources of revenue. Thus the former question of whether an innovation fits with where the company is headed is, for these companies, evolving into a question of whether the particular innovation fits with where the industry or market may be headed. 

If an idea, discovery or invention conceived by a corporation’s R&D falls outside the corporation’s strategy or competencies but represents potential value to others in the industry, it is no longer dismissed as quickly as it may have been on the original criteria of fit. The innovation may represent new intellectual capital with the potential to generate revenues without requiring the company itself to commercialize and/or implement the innovation. Corporate fit may be giving way to “strategic industry fit” as the measure of relevance for many companies.

In his new book, Intellectual Capital, Thomas Stewart cites the experience of Dow Chemical Corporation which sought to do a “spring cleaning” when it created the position of Director of Intellectual Asset Management in 1993. “The idea was to turn a passive function—central record-keeping for Dow’s 29,000 patents—into an active management of the opportunities patents represent by cleaning up the portfolio and seeing what additional licensing revenue might be obtained from them.”

Gordon Petrash who holds the position at Dow found that not only did the company exploit fewer than half of its patents, but “most were orphans: no business unit was responsible for commercializing or licensing them.” Petrash found that Dow was not alone. Most companies have a high percentage of unused, unattended patents, which not only cost a lot to maintain, but also represent significant underutilized potential.

Dow and several other companies are starting to do something about these “ideas for others.” “Over ten years, Petrash figures, Dow will save about $50 million in tax, filing, and other maintenance costs. Even better: by bringing valuable but unused patents out from the corporate attic, he estimates that the company will increase its annual revenue from licensing patents from $25 million (the 1994 total) to about $125 million by the year 2000,” according to Stewart.

Those of us involved in product and technology innovations may want to rethink the parochial question of “fit.” Having good ideas for others just may represent a source of revenue that rivals the revenue derived from ideas that fit our company’s strategy and competencies.

This article was originally published in Innovating Perspectives in September 1997. For this and other back issues of our newsletter, please visit our website at innovationsthatwork.com or call (415) 387-1270.