DISCUSSION PRESENTATION WITH HONG KONG IPD HOW TO

DISCUSSION PRESENTATION WITH HONG KONG IPD HOW TO USE AN IAM APPROACH TO GET MORE VALUE FROM IP Combining Intellectual Capital with Complementary Business Assets to Create Value Hong Kong, 30 th March 2005 Presentation for HK IPD Hong Kong 30 March 2005 © Dr Gordon Mc. Connachie i. CMG/Scottish Intellectual Asset Management gordon@gmcconnachie. com gmcconnachie@icmginc. com www. gmcconnachie. com Office: +-49 -2429 -908 -122 Cellphone +-49 -151 -1410 -3505 © Gordon Mc. Connachie i. CMG 2005

The Aims of this Presentation n n Discuss the pivotal role of IP in converting intellectual capital into value Show why IAM along business lines is necessary Relate this to Hong Kong Stimulate your ideas on how to use an approach to help make Hong Kong even more competitive Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

INTELLECTUAL CAPITAL: HOW TO TURN IT INTO PROFIT. Generic Approach

The Value in Organisations The Value in organisations originates in their human capital but is only released when this is codified and used in line with a plan as part of an imbedded (business) process using the IC, IA and IP in combination with the available Complementary Assets. In order to be sustainable this new focus must imbed from top to bottom in the culture of the organisation. Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Definitions Intellectual Capital: Knowledge that can be used to create value. n Intellectual Assets: Codified knowledge that can be used to create value. n Intellectual Property: Legally protected intellectual capital. n Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Definitions n n n Knowledge Management/ Intellectual Capital Management: the process by which an organisation or society generates wealth from its knowledge or intellectual capital. Intellectual Asset Management: the above process for codified assets. Intellectual Property Management: the above process for legally protected assets. Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

A View of Intellectual Capital Knowledge & Know-How Intellectual Assets Intellectual Property Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005 INTELLECTUAL CAPITAL

The Components of Intellectual Capital: A Spectrum of Knowledge Assets When legally protected these are Intellectual Property When codified these are Intellectual Assets Trademarks Patents Publishing Rights Brand logos designs Copyrights Trade Secrets Information Databases Confidential Information Industrial Design Software Platforms Technology Structural Capital Most Source: Pricewaterhouse. Coopers Hong Kong 30 March 2005 Customer Capital Unpatented Research Knowledge Providing Value Human Capital Culture Least Tangible Presentation for HK IPD Know-How © Gordon Mc. Connachie i. CMG 2005

Charting a Path Once you know where you are going! Targets Roadmap Gap Analysis Baseline Study Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

New Ideas to Activity Stage Gated Development Process (SGDP) n n n n Idea, Feasibility, Proof of Concept, Prototyping, Scale-up, Market Launch. Milestones, Hurdles, Probabilities of Success. How do the new ideas develop? How are they moulded into the required solution? How do you bring them to market? Do you do it alone or do you need help? Just about every development on the face of the earth today results from a team effort!! Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Developing New Technology? The path from new ideas through validation to a new technology: Intellectual Capital Value Creation Human Capital Value Extraction Intellectual Assets Intellectual Property Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005 SGDP New . Technologies

Realisation “Much of what I learned in my first 15 years in business is wrong or insufficient” Source: Rob Mc. Lean 2005 Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Tangible and Intangible Assets n Intangibles differ from tangibles in two ways that “change the rules of the game”, (if not the game itself): • Value in context • Multiple simultaneous value streams Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

The Interaction of Intangible and Tangible Assets to Create Earnings Intellectual Assets Intellectual Property Structural Capital (generic) Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005 Sales Force Human Capital Value Extraction Distribution Capabilities Value Creation Complementary Business Assets (differentiated) Manufacturing Facilities Intellectual Capital (unique) $

Changing the rules of the game World of tangibles World of intangibles ICM Business Model Ford Strategic Focus Integration Value Chain / Network Value Concept FMV Value in context Value Focus Assets Value streams/VRO Valuation methods Market, Cost, Income Multiple Context VSM Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Business models Value is created by realizing direct value streams from various forms of IA “Fordian” Mainly ICMian, some Fordian Mainly Fordian, some ICMiam Value is created by embedding IA in tangible products and services Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005 “ICMian”

Strategic Focus “Fordian” Vertical, horizontal integration, direct control of complementary business assets “ICMian” Dis-integration of complementary business assets, value chain interrelationships, network effects Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Value Concepts Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Value Focus: Assets Value Streams £ $ € Time Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Valuation Methods: Levels of Sophistication re Intangibles Low Assume can apply tangibles concepts and methods to intangibles n Focus on determining FMV through classic market, cost, or income valuation methods n Tend to apply rules of thumb or industry norms (e. g. standard royalty rates) n Presentation for HK IPD Hong Kong 30 March 2005 Moderate High n. Recognize the n Understand the significance of “context” distinction between in valuing intangibles tradable and nontradable intangibles In a transactional situation, will attempt to estimate the value of intellectual assets to the other organization, in their context n © Gordon Mc. Connachie i. CMG 2005 Recognize the potential of some tradable intangibles to generate multiple simultaneous value streams n

Context Engine / Value Stream Modelling Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Sources and Conversions of Value Conversion Mechanisms Sources of Value • Innovations • Complementary Business Assets – Purchasing – Manufacturing – Distribution – Sales Presentation for HK IPD Hong Kong 30 March 2005 • • • Sale Out-license Joint Venture Strategic Alliance Integrate with Current Business • Create New Business • Donate • Barter/Trade © Gordon Mc. Connachie i. CMG 2005 $

Converting Ideas Into Cash $ Integrate No Competitors Better Positioned in Marketplace? Use IP as source of funding through Securitisation Yes Strategic Alliance Yes Complementary Assets Available? No Joint Venture Yes Specific Complementary Assets Required? No Out-license or Contract Yes Adequate IP Protection Available? No Store Yes Invention Presentation for HK IPD Hong Kong 30 March 2005 Meets Market Need No Store Adapted from David Teece, 1986. © Gordon Mc. Connachie i. CMG 2005

Aligning Capabilities Vision Strategic Framework IP Objectives/Roles: Strategies Innovation Strategies Value Creation Cash Value Extraction Positioning Value Where does Intellectual Property fit into this? Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Case Study: Dow Chemical IAM INTELLECTUAL ASSET STRATEGY/ TACTICS DOW INTELLECTUAL ASSET PORTFOLIO BUSINESS STRATEGY BUSINESS INTELLIGENCE & TECHNOLOGY ASSESSMENT BUSINESS VALUE ASSESSMENT R&D INTELLECTUAL ASSET GENERATION ALTERNATIVE VALUE GENERATION TECHNOLOGY PROCUREMENT Presentation for HK IPD Hong Kong 30 March 2005 TECHNOLOGY INVESTMENT PLANS Five Phases 1 Portfolio 2 Strategy 3 Business Intelligence & Technology Assessment 4 Valuation 5 Investment Source: Dow Chemical © Gordon Mc. Connachie i. CMG 2005

DOW’S VALUE TARGETS • Patent tax maintenance savings $40, 000 (lifetime/average 10 years. ) • Obtention costs $1, 000 (per year) • Licensing income $25, 000 (1994) $125, 000 (2000) • Generation of more value creating intellectual assets Presentation for HK IPD Hong Kong 30 March 2005 “Billions and Billions”

The Service Company Described in IC Terms Intellectual Assets Intellectual Property (Copyright, Trade Marks Patents ) Structural Capital (generic) Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005 Sales Force Human Capital Value Extraction Distribution Capabilities Value Creation Complementary Business Assets (differentiated) Service Facilities Intellectual Capital (unique) $

Society Described in IC Terms Intellectual Assets Intellectual Property (Copyrights, Patents, Trade Marks) Structural Capital (generic) Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005 Gov’t Global Representation Human Capital Value Extraction Network Capabilities Value Creation Complementary Business Assets (differentiated) Education Facilities Intellectual Capital (unique) J o b s

Scotland: High Tech Companies Starting anew n n n 2001 Scottish Executive identifies market failure (world class R&D, poor conversion to jobs). 2003 Executive launches virtual institutes (ITI fills gap between fundamental R&D and start-up companies in Energy, Life Sciences, Techmedia). Funding £ 450 MM/ HK $ 6, 500 MM over 10 years. 2004 Executive launches National Intellectual Assets Centre. Funding £ 1. 3 MM/ HK $ 20 MM annually. SME focused. …. . in addition to other classical economic development measures. Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

World Activity n n n n Regional EU IC focus DG level Brookings Study US PRISM Study EU Lisbon Protocol EU La. Baule Think Tank Scotland Initiatives Singapore IP Academy Hong Kong? Presentation for HK IPD Hong Kong 30 March 2005 n n n n Company Dow Chemical IAM IBM Licensing Neste Tech Audit NXT Pure ICM play Toyota end-to-end The ICM Gathering SME focus: Scotland Hong Kong? © Gordon Mc. Connachie i. CMG 2005

A Hierarchy of IP/IC Management Visionary (Drive Growth) Integrated (Manage for Growth) Profit Center (Manage for Profitability) Cost Control (Control Costs, Improve Productivity) Defensive (Build Portfolio, Protect Markets and Technology) Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Developing an IAM Capability 1. 2. 3. 4. 5. 6. 7. 8. 9. Accept there is a need and a sponsor Create inventory Evaluate present contribution Set IA tactics Check systems and management support Create IA packages in strategy context Determine value release route Execute the plan Report success to stakeholders Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Looking at a Business in IAM Terms n n n n Look at what you have: Baseline. Look at where you want to go. Look at complementary assets. Conduct gap analysis. Conduct feasibility study. Select options. Draw a roadmap. Drive. Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

You may need help on any of these Primary n n n Secondary Diagnosis of current situation Diagnosis of current need Creating IAM based business approach Managing complex, copartner development Managing multiple value release opportunities Making and following through on deals Presentation for HK IPD Hong Kong 30 March 2005 n n n Deep drilling opportunities Patent and technology portfolio analyses IP Portfolio strategy development Probability adjusted valuation of new opportunities Value release option analyses for new developments leading to multiple value release. © Gordon Mc. Connachie i. CMG 2005

Key Pointers n n n Do not leave money on the table. Do not chase shadows too long. Look at the deal from buyer and seller point of view. Leadership is important: people push. The bottom line: it’s 20% inspiration and 80% hard work. Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Is IAM worth it? You don’t need to take my word for it! n Ask Bill Stavropoulos of Dow Chemical or Marshall Phelps ex IBM who have done it. n Ask Greg Allan of Scottish Executive or David Llewellyn of Singapore IP Academy who are doing it now. n Ask the ex-CEOs of Union Carbide or of British Leyland who lost out. Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Salient Points for IPD Customers and for yourselves n n n Where is the money to be made? What is the role of the HKIPD? What is the role of Government? What is the role for individual (SME? ) firms? What should the Hong Kong economy look like in 5 years time and who are the partners to get you there? Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

A THOUGHT TO TAKE AWAY! Systematically managing your intellectual assets………. …………. . in a business driven manner, is……. . A Hidden Asset Increasing in Value Increasing in Importance How can you help your customers do it better? Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005

Thank you! Presentation for HK IPD Hong Kong 30 March 2005 © Gordon Mc. Connachie i. CMG 2005