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10.13007/259
Ideas for Leaders #259
IP Management Strategies for Profiting
from Business Model Innovation
Key Concept
How do companies protect their innovative business models from
competitors? According to this Idea, intellectual property strategies are often
utilized to do this, and depending on what type of company, formal or informal
strategies can be the most appropriate. This research looks at four types of
business model to analyze the role of IP management strategies in profitable
business model innovation.
Idea Summary
A company’s business model is the ultimate measure by which it is judged, as
it expresses the underlying logic of its business. Most importantly, it explains
how it creates and captures value—something The Economist describes as a
company’s raison d'être. So how do you ensure something so important
remains secure from competition? One way is to use intellectual property (IP)
protection strategies.
In a paper accepted for presentation at the 2013 Academy of Management
Conference, researchers from the University of St. Gallen examine how formal
and informal IP protection mechanisms could potentially be used to protect
business model innovation. They propose that different business models
should be carried out with specific protections strategies; while some
business models are characterized by both a high degree of formal and
informal protection, others primarily apply informal protection mechanisms to
profit from business model innovation.
Formal IP instruments include patents, trademarks, designs, copyrights, etc.
On the other hand, informal protection instruments include keeping trade-
secrets, complexity of products or manufacturing processes, a strong brand,
qualified employees, loyal customers, etc.
Specifically, they looked at four types of business models:
The Franchising Model: here, the owner of a protected trademark (franchisor) grants
another person or company (franchisee) the right to use his business concept and operate
under this trademark (an example of this is McDonalds). Franchising firms only partially make
use of formal protection instruments and pay higher attention to informal instruments. They
hardly make use of, for example, patents; however, they do focus on informal protection
strategies like building strong brands, strong distribution channels, etc.
The Razor and Blade Model: this model follows a ‘cross-subsidization logic’; companies give
certain components of their business away for free or sell it below market price, in order to
generate high margins on other parts of the business (examples include HP and Nespresso).
Those operating under this model tend to extensively use formal as well as informal protection
instruments. In addition, they are characterized by a very dominant and partially aggressive
Authors
Bonakdar, Amir
Frankenberger, Karolin
Bader, Martin
Liegler, Florian
Gassmann, Oliver
Institutions
University of St. Gallen
Source
Working Paper
Idea conceived
July 2013
Idea posted
November 2013
DOI number
Subject
Competitive strategy
Business Model Innovation
Value Creation
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appearance on the market.
The Pay-Per-Use Model: in this model, two distinct groups of users interact on the platform of
a third party, such as credit card companies like VISA who connect shoppers with retailers and
subsidize the credit card holders. Firms that follow the pay-per-use logic vary in the use of
formal protection instruments, but show a relatively low degree of formal and informal
protection.
The Multi-Sided Platform Model: companies using this model differ from others by billing the
customer solely usage-based (such as the video on demand industry). These firms show the
lowest degree of informal protection, while varying in the use of formal protection mechanisms.
Overall, they found that all the participating firms took advantage of various
protection instruments of both types, formal as well as informal.
Methodology: The researchers interviewed senior managers and collected
archival data (such as press releases) from 24 firms. Participating companies
came from a variety of industries and included fast food, fashion, music,
healthcare and publishing companies. They also visited the Swiss Federal
Institute of Intellectual Property to gain further insight into the process of how
IP titles are granted.
Business Application
It is clear from these findings that a firm’s choice of IP protection is contingent
on its applied business model. Depending on the current business model it
operates in, it might be useful to enhance certain protection instruments in
order to generate competitive advantages. As outlined above, certain
business models are better suited to certain types of protection.
New entrepreneurs can take the results as guidance for deciding about the
business model they want to operate; depending on the current assets they
own, they might be more successful running a business model they can
protect and consequently capture higher value from. On the other hand, the
results can help to allocate resources to where they are needed most.
Further Reading
Business Model Innovation and Intellectual Property Management:
Strategies for Profiting from Business Model Innovation. Amir Bonakdar,
Karolin Frankenberger, Martin Bader, Florian Liegler & Oliver
Gassmann. University of St. Gallen Working Paper (July 2013).
Further Relevant Resources
Amir Bonakdar’s profile at the University of St. Gallen
Karolin Frankenberger’s profile at the University of St. Gallen
Martin Bader’s profile at the University of St. Gallen
Oliver Gassmann’s profile at the University of St. Gallen
University of St. Gallen Executive Education profile at IEDP
© Copyright IEDP Ideas for Leaders 2013
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