QUESTION: How can management decide what IP to keep, what to send out, and what to forget?

I think they would have to decide based on the projected present value of future cash flow of each project and decide which ones to hold onto or turn into a spinoff.

Like the paper suggested, when you let go one of the employees, it does not always have to be in bad terms. Maybe companies can hire their ex-employees as an outside contractors on top of the severance package provided. Like the paper suggested, this will be easier for people that you let go to come back to work for you again when economy is picking up.

The article made it quite clear I think.
Companies should spin off secondary projects, those who need a lot of research. The problem to point out is that when you spin off IP, you can expect it to go to competitors.
In my opinion, spin offs allow companies to focus on their core competencies, what they are good at !

This question makes great sense in a way that it is easy to think in principle that a firm should let go non-core IP. However, the difficult part is to decide what is core and what is not core. A core now does not mean it is the core for the firm forever.

I think we can define core/secondary projects and IP not only by the
cash flow the company can expect from it, but also by how their
competitors value it. Obviously, if a competitor is handicapped and
needs any of our assets, then a secondary project can become much more
valuable to us.

Also, I think a company must take into account how open or aggressive
its competitors are. If, as Lawrence said, there remains an option of
hiring ex-employees because the spun-off company remains neutral,
their are less risks than if competitors have a more "protectionist"
attitude.

Obviously, it's impossible to predict the future. However, I feel that every company should have a clear view of its strategic long-term goals, including where it sees itself in 1, 5 or even 10 years. Although subjective to changes, especially during a downturn, it can still help the top management understand the core competency of the company and how it is predicted to evolve, thus being able to differentiate between what is core and what is not. By spinning-off the activities which aren't, the company can increase its incoming cash-flows, and use it to move forward in its desired direction.

Under "Move 2", the case states that projects that should be eliminated are those that "havent yet proven their potential or lie outside the core"of the business. It also mentions that in terms of IP, to allow only the "nonstratigic initiatives" be taken by a second party. So, the hard part will come at analyzing to see which projects and IPs are nonstratigic. Here is where Naomi made a good point, the company should know their long-term goals (1 to 10 years) and therefore the firm should have a good idea of what constitutes a "nonstratigic" project or IP.

I don't think it's enough to view innovation in terms of the sum of future cash flows due to the uncertainty involved in the valuation of future cash flows from R&D; innovation by definition is disruptive and not predictable.

I think senior management must, in a downturn where they are faced with tough decisions regarding the layoff of middle management and the downsizing of R&D projects, very carefully evaluate projects that are 'on the chopping block' in terms of the companies long term strategy. To do so, senior managers need to gather as much information about these projects in order to evaluate them against long term strategy (ie: become experts themselves).

The challenge would be for senior management to be as well-informed as possible in the shortest time possible.

IP to keep: The core competency of one company which is very valuable, crucial, and can let the company lead or even monopolize the industry.

IP to send out: The cost of this innovation is very high and the product of this innovation need many participants, users, and developers to prosper. For example, Google, Yahoo, and Facebook's API open to the public. However, the company should always hold the rein of this innovation or have certain control over it.

IP to forget: The secondary project that doesn't generate any case flow to the company now and isn't promising at all or the innovation has been proven substituent or some competitors have similar IP.

The IP once liberated, may turn into competiton. A company should choose a project that has upside ptential tomorrow and aviod to take a project that could become a substitue for one of the company's current offerings.

It's necessary to build a short term and a long term strategy before to make a decision on IP.
I think is not enough to think about the core, because in the short term an IP which is not in the core could generate good revenues to the company, in that case I think everyone is agree is better to keep that IP even it's not in the core.
By the way, following the reading, it's necessary (and even most important) to think in the long term, projecting the company after the downturn is finished and then decide the IP to keep.
I think, for a company in a downturn, the principal problem to solve is first how to survive to the downturn (specially if the company is in a bad position); and second, how to "rebound back faster and higher than the competitors when the conomy improves" (sic); on the base of these two problems, the company should take a decision.

Dear TA, i just partially agree with your answer.

A company does not have to keep just its core competency, and send out all the secondaries or those with high costs.
As Luis said i think, the middle and long term does not have to be let aside.
By "throwing away" all the secondaries cores, we will loose some potential advantages compared to the competitors. During the crisis, it can be really rentable to invest in some secondaries core to gain in image / strenght / future profitabiliy.
Customers wont trust a company which closed for instance some places to concentrate itself on its main competency, but may trust a company which seems to be more healthy.
The middle and long term should also not be forgotten in this question, because it could lead a company to brankruptcy if this one just think in the short term

The question here seems to be related to survival of the company in a dowturn. On one side, like I mentioned before, it's important to clarify the strategic trajectory of the company and understand its long terms goals in order to decide now what is important to keep inside the comapny. On the other hand, though, when a company is facing a real survival challange, and has to figure out quickly how to keep its head above the water until the downturn blows over, it will probably just do what it can to increase revenues and cut costs in the short term. In fact, the article is all about how to do just that and still not give up on a future growth potential, by moving innovation outside.

I think the point of timing is a very important issue. As mentioned in the discussion, what
is your core-activity today might not be your core-activity of tomorrow.


The more innovative and disruptive a product is, there more uncertain are the cash flows
associated with it. If you look upon it from a strategic perspective, we can
say that we are looking for the undisclosed Blue Ocean, therefore we don’t have
a market size to benchmark against.


Instead I would suggest using Sensitivity Analysis. Determine which products have the largest
potentials and their associated risks. Estimate their variance and covariance,
and see if it possible to determine an optimal tangent portfolio.


Open Innovation in my perspective is not to get rid of Intellectual Property, but
how to manage it. I remember reading an article what a rule of thumb stating that
only approx. 20% of the inventers were the ones to commercialize their products.


I think it is very important that companies indentify their major strengths. Are they the inventor or the ones taking it to
the market? Many companies believe they are both when they in fact only have the
resources to be one of them.


The solution could be Licensing as mentioned in the article. Keep those
Intellectual Assets which are able to create high volatility, and license out those
of lower value-per-risk-unit to you.



/Anders

I think the most important thing is to identify whether the IP you examing is a killer IP in a certain field or not. If it is a killing one, then of course you have to find every penny you can get, no matter from the government, a ventur capital, or a private equity fund to support it. The catch is that you must keep your ownership of that killer IP and it will show you how rewarding it is.

However, not every company is holding a super-killer IP, so understanding company's goal and evaluating the loses and gains of developing or letting go a certain IP usually serve as the criteria the most companies will do when making a decision.