Protecting IP Assets of an Organization

In my last article, I had written about non-legal means of protecting IP. The main means of protecting a company’s IP has always been via legal means: either by registered patents, trademarks, copyrights, Industrial design rights, etc. But all these protection mechanisms imply that the company must disclose its intellectual property to an government agency responsible for registering IP.

Sarbanes-Oxley Act & IP Protection


Sarbanes-Oxley Act has made it mandatory for US listed companies to follow certain procedures and practices to protect their IP. Companies listed in the US stock exchanges must implement some form of "best practices" and disclosure processes and controls with regard to intellectual property assets.

Private and other non-US companies can learn some of these best practices to protect their IP by following the standards set by Sarbanes-Oxley Act. For Indian IT companies, it is prudent to follow Sarbanes-Oxley Act even though its not listed in the US. Mainly because it increases investor confidence and clears the path for a future US listing. In addition, it provides for an increased protection to their IP.

Sarbanes-Oxley Act requires all public companies to provide enhanced disclosure in its filings with the U.S. Securities and Exchange Commission (SEC) of issues and business matters that materially affect, or are likely to have a material impact on, its business and financial performance. This includes potential revenue gain from licensing of patents, potential losses due to IP related litigation and the estimated value of its IP.

Disclosure Norms in Sarbanes-Oxley Act

At the core of the Act is the requirement that public companies establish and maintain "disclosure controls and procedures" to ensure that information required to be disclosed by a public company in its SEC reports is communicated to the company's management in a manner which allows timely decisions regarding required disclosure.
The effectiveness of disclosure controls and procedures must be reviewed and evaluated on a quarterly basis. The Act does not prescribe the steps a public company must take regarding timely and accurate disclosure of matters related to its intellectual property assets, and neither the courts nor the SEC have provided any guidance on this issue.

Implementing IP Best Practices

While it is not possible to predict what a court or the SEC could determine at a later date as to appropriate disclosure controls and procedures regarding intellectual property assets, listed below are five steps that are recommended for public companies to implement IP best practices in light of the uncertain requirements of the Act regarding intellectual property.

Step 1 – Inventory Intellectual Property Assets

Every public company has some IP assets. For some companies, these are the most important or key assets. However, it is not possible to make any meaningful assessment of how these assets contribute to the financial performance of a company without doing an inventory to determine the types of intellectual property the company owns or on which it relies in order to conduct its business.

The areas to examine include at a minimum:

• Patents and Inventions
• Works of authorship such as videos, books, manuals, plans, specifications and software
• Business processes, know-how, trade secrets and other proprietary information
• Brands, trademarks and service marks

These are collectively termed as "IP Assets".

There is no easy way to gather the necessary information to create the inventory of IP Assets. I recommend that an audit team of internal legal and business personnel, coupled with outside financial and/or legal advisers, be assembled. This team can decide on the best information gathering process based on the organization and culture of the company.

One vehicle that companies often use is to solicit this information through an electronic questionnaire sent to the heads of business units, as well as to the legal department. The questionnaire will ask the business unit heads through appropriate questions to list the IP

Assets on which they rely for the functioning of their business unit.
Business Unit Heads need to provide:

• A list of all patents and pending patent applications
• A list of all trademark registrations and pending applications
• A copy of all form consulting and nondisclosure agreements.

Alternatively in some companies personal interviews need to be conducted in order to obtain this information. Irrespective of the approach, creating an inventory list of IP Assets is an essential first step.

Step 2 – Determine the Value of Each IP Asset

Once the information is collected from the business units and legal department, an initial assessment must be made as to the relationship of each of the identified IP Assets to the company's financial performance to determine whether the asset is essential, critical, useful, or minimally important to the company.

One way to do this assessment is to make a judgment as to the economic result:

• If the company were unable to use the asset in its business
• If use of the asset were restricted
• If others could use the asset without restriction.

At this stage, the company can also consider retaining an IP valuation expert to assist the company in determining the value of the IP Assets.

After each identified IP Asset has been assessed, it is advisable to determine for all identified IP Assets, other than those characterized as minimally important, how well the IP Assets have been protected from an intellectual property perspective.

Protection can be afforded through different mechanisms. For example, for a proprietary technology that is critical to the company's business, it is recommended that patent protection be sought – perhaps in the U.S. and abroad – and maintenance fees continue to be paid following issuance of the patent.

If there is a brand or trademark associated with a key product or service that contributes significant revenues to the company's bottom line, it is important to know whether the mark or brand has been federally registered and, if relevant, perhaps registered abroad.

If the company's products include works of authorship such as software or books, it is important to know whether the copyright for such works has been registered, and to ensure that agreements are in place with the authors of those works so that ownership rests with the company.

If the company has proprietary information or other trade secrets, it is important to know whether the company has had employees and consultants sign non-disclosure agreements. If the company has utilized consultants, freelancers or independent contractors, it is important to know if IP assignment agreements have been executed.
Upon completion of Step 2, the company is in a position to determine:

• The current value of its IP Assets
• How well they have been protected legally
• Whether the company can enforce its IP rights in the event of infringement

For example, if the company failed trade mark outside the United States would not be a certainty. This would, in turn, reduce the value of that brand or trade mark.

Similarly, if the company had paid a consulting firm to produce a piece of software which provided the company with a key competitive edge in its business, but failed to obtain an assignment of intellectual property rights, the consulting firm would be free to make that software available to the company's competitors.

In that case, the software would have less value. Because value is lost or created based on the intellectual property protections obtained, it is critical for every public company to create a plan for protecting its intellectual property, which is Step-3 of the recommended IP "best practices."

Step 3 - Establish an IP Protection Plan

An Intellectual Property Protection Plan must be created to establish:

• The varying levels of intellectual property protection to be obtained for any class of IP Asset
• The process for determining the appropriate level of protection for each IP Asset.

For IP Assets which are essential or critical to the business of the company, it is essential that a maximum level of protection be sought:

• For a key brand or trademark, the company will, at a minimum, want to make sure adequate clearance checks had been performed prior to use
• Obtain federal and, if relevant, comprehensive global registrations
• Obtain a copyright registration for any associated logo or design element
• Obtain ownership from any vendor or third party who created it
• Adopt strict usage guidelines
• Obtain maximum domain name protection
• Monitor use through subscription to a trademark watch or monitoring service.

For less important trademarks, a lower level of protection might be obtained. The determination as to what level of protection to seek for a particular IP Asset is a determination to be made by a combination of legal and business personnel.

To assist the business personnel in making that determination, a checklist or criteria document can be prepared and distributed. For example, every work of authorship a company employee creates is eligible for copyright protection and can be registered.

While copyright registration is relatively inexpensive, the universe of documents, papers, reports and other works created by company employees is so vast, seeking copyright registration for every work is neither practical or advisable. On the other hand, there are powerful benefits to obtaining copyright registration. So depending on the importance of the documents - a decision needs to be made.

Thus, every public company needs to evaluate whether it owns or distributes works where it is advisable to obtain copyright registration. For example, if the company sells a product which is itself eligible for copyright protection, such as software or a book, it is clear that copyright registration is a must for the product & the associated documentation. For example, Movie companies typically copyright all things associated with that movie - scripts, production videos, interview with actors etc.

Dealing with whether to file a patent application requires a similar though different approach. Filing to obtain a patent for an invention is more costly than copyright registration and thus the decision on whether to file for any particular invention requires legal, technical and business input.

Certainly, if there is a substantial likelihood the invention when productized will have significant commercial value, filing a patent application is most likely the way to go. Indeed, in certain industries (e.g., pharmaceutical), obtaining patents on products is the primary form of intellectual property protection which is implemented.

For some IP Assets, certain measures can be implemented without specific reference to assets, so that appropriate steps can be taken before the asset is developed or reduced to practice. To protect the trade secret status of a company's proprietary process or know-how, a series of non-disclosure agreements need to be in place for a variety of different circumstances.

Similarly, appropriate agreements need to be in place to ensure that the company owns the IP Assets it develops or commissions and pays third parties to develop. For example, a consultant or vendor owns the copyright and patents in the work product it produces for the company, unless the parties have entered into an agreement assigning those intellectual property rights to the company

Step 4 – Implement the Plan and Audit/Monitor Compliance

Once a Plan has been completed, it needs to be implemented. First, employees need to be educated about intellectual property rights, the Plan and how the company's financial well being depends on the IP Assets. These educational efforts include in-house seminars and the dissemination of complementary written materials. Most importantly, however, is a message from the CEO of the company, reinforced by the division heads, setting as a company objective the identification and protection of IP Assets and emphasizing the importance of these assets to the company's bottom line.

Unless a corporate culture is attuned to intellectual property rights, any seminar and written materials on intellectual property will likely have only a minimal impact.

In tandem with the educational efforts, the company needs to implement the Plan with regard to the IP Assets identified in the initial inventory. To the extent the company is not in compliance with the Plan, remedial steps need be taken as soon as possible.

In certain cases, it may be impossible to remedy certain deficiencies resulting in a loss of intellectual property protection. If the loss involves a critical IP Asset, then a determination needs to be made as to whether this loss is a reportable event under the Sarbanes-Oxley Act.

For example, such a determination would need to be made if the U.S. trademark registration for a key brand or trademark were lost due to failure by the company to file a required affidavit of continued use with the United States Patent and Trademark Office, resulting in a dilution of the company's rights.

Once the initial implementation and analysis has been completed, the company needs to monitor compliance and do periodic "maintenance" audits. Processes and policies need to be put into place to capture and assess any change in the value of any IP Asset and whether such change materially affects the financial status of the company.

Strategic transactions involving the acquisition of IP Assets need to be included as part of the Plan and included in maintenance audits.

It is recommended that a public company identify an individual or team within the company to receive information regarding new IP Assets developed, acquired, and transferred through sale or otherwise, and/or circumstances or events which could result in a change in the value of IP Assets.

Larger public companies can consider the appointment of an IP Compliance Officer knowledgeable about intellectual property law and skilled and experienced at valuing and evaluating IP Assets.

Step 5 – Report procedures to report changes to IP assets

Obtaining information regarding IP Assets and more particularly any material changes in value to particular IP Assets is not very useful unless there is a procedure and process in place to ensure that this information is communicated to the company's management, including its CEO and CFO, charged with overseeing compliance with the Sarbanes-Oxley Act and SEC reporting requirements.

Clear lines of communication must be established with sufficient redundancy so that valuable information regarding IP Assets does not fall through the cracks. The Sarbanes-Oxley Act also requires that the company evaluate on a quarterly basis the effectiveness of the controls and procedures implemented regarding intellectual property. The quarterly meeting needs to be a part of a regular schedule of meetings of the group of individuals charged with IP related Sarbanes-Oxley compliance.

Closing Thoughts

Compliance with the Sarbanes-Oxley Act is mandatory for US listed companies. For public companies listed elsewhere, following some of the guidelines is important in protecting its IP. Protecting IP Assets that are important to a company's current & future financial performance.

Thus it is advisable for any public company or a large private company to follow "IP best practices", including implementation of adequate disclosure controls and procedures, and assume reporting responsibility to the company's management regarding material changes in the value or other features of IP Assets that could materially affect the company's business and financial performance.

Also See:

Creating a Culture for Innovation and Protecting Intellectual Property - Part 1
Creating a Culture for Innovation and Protecting Intellectual Property - Part 2
Customer as Co-Innovator
Global R&D Network
Virtual Scale - Alliances for Leverage
Cutting Edge R&D in India
Understanding Financial Value Creation
Innovation A Core Business Concept Part-1
Innovation A Core Business Concept Part-2
Collaborate to build Competitive Advantage
Globalization of R&D
Organization Development in High Tech Startups
The Value of Talent
Giving Your Top Performers a Reason to Stay
Improved Cross-cultural Communication Increases Productivity
Managing Diversity for High Performance
Promoting Organizational Change Through Communication
Hiring in high-tech firm: Build Vs Buying Talent

Creating a Culture for Innovation and Protecting Intellectual Property - Part 2

This article is the continuation of my pervious article. The main idea for this article comes from an e-mail which asked:

"Can anybody tell me the" Role of Human Resource Development in creating a culture for Innovation and Protecting Intellectual Property".As we all know that the Intellectual property is an intangible asset of a company. In order to protect this intangible asset what HRD initiatives or the proactive measure are to be taken , rather than resorting to legal methods. Although legal remedies are available, but they are time consuming and the damage might have been done by the time legal process is completed"


In this article, I will write about what is Intellectual property? And then go into ways of protecting intellectual property. As the question was to know if there are any process/procedures to protect one’s IP without resorting to legal means, I will concentrate on that first, and then deal with legal means. Since the subject is so vast, I cannot cover all the aspects of protecting an IP in this article, Instead I will just go over the main points only. There are several books that have been published on protecting IP - I have listed my favorite set of books in this topic. This article does not go into depths of IP protection laws. IP protection laws vary from country to country and different IP’s are governed by different IP laws.




What is Intellectual Property?

Intellectual property is a general term which applies to all the creative ideas generated by any individual. This includes invention, discovery, writings, paintings, music, films, garments, drama/plays etc.. Intellectual property also applies discovery of new items: life forms, materials, laws of physics, chemistry, mathematics etc..

WTO defines it as: "Intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time."

In short intellectual property includes all original ideas. However, the basic public policy has distinguished intellectual property into three parts:

• Protected IP
• Public domain IP
• Private IP

Public Domain IP

Human civilization has always advanced by sharing knowledge. Thus the fundamental philosophy towards intellectual property is to make it a public knowledge which can be shared openly and freely with all citizens. For example, works of Shakespeare or Kalidasa or as simple works such as this blog are public domain IP. This means that others can copy, modify and use these works in anyway possible.

Protected IP

However, to encourage innovation and to incentivize creative individuals - the concept of protected IP came into being. The rationale for the protection of intellectual property is to facilitate and encourage the pursuit and disclosure of innovation into the public domain for the common benefit, by granting authors and inventors exclusive rights to exploit their works and invention for a limited period. Once the period of protection lapses, the IP becomes a public domain IP. Almost all countries have formulated various laws to protect IP, and these laws have to be according to WTO rules. However, IP protection laws vary from country to country and the implementation of IP protection laws vary greatly between nations.
WTO classifies IP into different categories:

1. Copyright
2. Geographical indication
3. Industrial design rights
4. IP cores used in electronic design
5. Moral rights
6. Patent
7. Personality rights
8. Plant breeders' rights
9. Plant variety protection
10. Trade dress
11. Trademark
12. Trade secret
13. Traditional knowledge
14. Domain Name

I will describe the types of IP and its implications in the future articles.

Private IP

Private intellectual property refers to all IP which is not publicly disclosed nor are these protected by the existing IP laws of any nation. Private IP refers to intellectual property which is developed but it is kept out of public knowledge. Military secrets - such as designs for a fighter plane, a battle tank etc.. are all examples of private IP.

Private IP is probably the oldest and the best form of protection offered to any intellectual property. Even today, a vast portion of IP is in the private domain - owned by governments, individuals and corporations. The best example of private IP owned by a corporation is Coca Cola - the recipe of Coca-Cola is a company secret. It is an private IP owned by Coca-Cola corp.

In the past - for several centuries, people, societies were very reluctant to share any IP. Medical science was one such profession where knowledge was shared only among a select few and this enabled these individuals to exert high levels of influence and power over the society. Similarly, few communities protected their knowledge in weaving, metallurgy, engineering etc..

The biggest disadvantage of private IP is that it can be stolen or copied or reinvented by others. Once others have copied it or independently developed it, the original owner cannot claim any exclusive rights or protection for his IP. History is full of such examples where one managed to steal the secrets or copy other’s ideas. For example - during the cold war, Soviet Union and United States engaged in spying over other’s research and development efforts. They copied off each other designs or re-engineered other’s innovation etc.. Soviets designed their version of space shuttle ‘Buran’ by seeing the American Version. See the familiarity in the picture.

Protecting Private IP

The oldest means of protecting any IP is to make it private. By making it a trade secret, a company can protect its IP. Coca Cola, Pepsi Cola, Fruto Lays, etc.., have made their products a company secret. Thus others cannot copy it. ( at least in theory)

Steel manufactures, chemical manufacturers etc. have developed their own unique processes to improve productivity - but these are made as company secrets and are not shared with public.
However, the modern technologies and trade rules makes it difficult to keep a company secret for long. Competitors can reverse engineer any product and know the material constituents and the process of creating it.

Industrial espionage - the act of stealing industrial/corporate secrets can cause huge losses to the original owner of the IP. However, the owner of a private IP cannot claim any legal protection against industrial espionage because these IP’s are not publicly disclosed. For example, the development of the Tupolev Tu-144 supersonic aircraft, with its rapid design and similarity to Concorde, was one of the most prominent examples of industrial espionage in the 20th century

The only protection offered to private IP is that the pirate can be held liable for breach of various laws other than IP theft - like trespassing, breaking-in etc.. The recent HP spying case makes a good example of protection against industrial espionage.

Stealing company secrets or confidential information is illegal in most countries. For example in India, stealing company secrets or confidential information is a crime punishable with a 5 year prison sentence.

However, in most country laws, the burden of proof lies with the accuser - i.e., the company or the organization must prove that the individual or organization in question has indeed stolen its IP. This implies that the company seeking protection to its IP’s must prove that the IP in question was indeed a company secret and it has taken serious efforts to protect its secrets and the accused had indeed stolen that information. The challenge in these cases is that the company must disclose more of its IP in the court to prove that the IP in question was indeed its own secret. The possibility of disclosing more of company secrets makes it unattractive to pursue a legal solution to protect its private IP.

The original question was basically on how one can protect an IP without resorting to legal means. The best way to do that is to make that IP private - or at least make most of the IP private. Private IP allows for exclusive rights for an infinite time.

Culture and Innovation Protection

Just like innovation is greatly dependent on the culture: National culture, Corporate culture, and Individual culture. Protection of IP is also highly dependent on culture.

Before advent modern intellectual property rights, there were only socially-enforced systems for protecting intellectual works. Society considered it a taboo to copy other’s works. Plagiarism was strongly criticized and condoned.

If a culture encourages innovation, then that society knows the dangers of plagiarism. An example in wikipedia shows the link between culture and IP protection: "..customary code of non-infringement used by clowns to recognize each performer's exclusive right to their unique style of makeup, costume and persona. The universality of "The Code" supports the belief amongst clowns that this traditional protection is more effective than that provided by trademark and copyright law."

I have worked in Silicon Valley companies and these are highly innovation oriented companies. Here, the general culture is to innovate and protect that innovation. In the similar vein, IP protection is also ingrained into the work culture at these companies. The common practices are:
All employees are trained in company’s security policies. These training programs are repeated at regular intervals to reinforce and change the employee culture.

• Employees are trained in IP protection laws: patents, copyrights etc..
• Employees are encouraged not to violate patents/IP of other companies
• All internal documents are marked ‘confidential’ or ‘secret’ or ‘top secret’.
• Employees are encouraged not to talk about their projects with others outside the company
• Employees are encouraged to file as many patents as possible
• All confidential documents are stored and managed in a central server
• Employees are encouraged not to carry a copy of these documents in their laptops, instead all employees are given remote access to the corporate network via VPN
• Paper shredders are placed in all work places to encourage destruction of confidential papers & printouts
• Documents are classified into different categories of secrecy: Top Secret, Secret, Confidential etc.. The access to these documents are controlled - and copying/printing of these documents are prevented. In some companies, the top secret documents are printed only by a central document administration office and is sent to employees who are requesting it. These documents come with a color coded binders which indicate the level of secrecy. These documents are tracked closely so that any loss of documents is noted immediately.
• A random & a routine data protection audit is carried out to check how the employees are protecting the company data.
• Meetings are held behind closed doors and casual meetings in corridors are strongly discouraged.
• Breachs/Violations in company secrecy policy or data protection policy are dealt with immediately and adequately. A severe loss or breach of information may result in dismissal of an employee.

These IP protection policies are uniform all over the organization irrespective of the countries - this reinforces the company culture.

Companies have to build a culture of IP protection via series of policies, training programs and leadership demonstrations. Practices mentioned above are done on daily basis by all employees - this reinforces a culture of IP protection within an organization.

Other Means to Protect IP

Protecting IP also means preventing piracy. Controlling the technology used to copy or develop a product prevents piracy. For example, in the days of LP records - the poly vinyl records were the means of distributing music. Since these records could be manufactured by a select few firms, piracy was restricted. But with the advent of compact cassettes, small fly-by-night operators began to sell pirated music cassettes. In India, thousands of small time operators sprung up in 1980’s who were selling pirated music. With the advent of CD recorders, copying music CDs became very easy - even individuals could copy CDs in their home PCs. Later with the advent of Internet, Peer-to-peer networks, and MP3 formats piracy became a global menace.

Currency notes is another example of controlling the piracy via control of manufacturing equipment. Machines used to print currency notes are highly regulated and controlled. This enables governments to control the use of counterfeit currency.

Difficulty in copying & distributing counterfeit products is a proven method to protect an IP. For example, semiconductor chips and cars cannot be counterfeited. But individual patents which are used in developing the product can be violated. If patents or trademarks or copy rights are violated, then one has to resort to legal measures to protect their IP.

WTO & IP protection

The most comprehensive agreement on IP protection was developed by World Trade Organization (WTO) in 1994. During Uruguay round of negotiations, a comprehensive & binding agreement was drawn upon all members states.

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) is an international treaty administered by the WTO which sets down the minimum standards for most forms of intellectual property regulation for all member countries of the World Trade Organization.
Specifically, TRIPs deals with: Patents, Copyright and associated rights, such as rights of performers, producers of sound recordings and broadcasting organisations; geographical indications, including appellations of origin; industrial designs; integrated circuit layout-designs; patents, including the protection of new varieties of plants; trademarks; trade dress; and undisclosed or confidential information, including trade secrets and test data.

TRIPs also specifies enforcement procedures, remedies, and dispute resolution procedures. However the variances in the local implementations of IP protection laws creates challenges in protecting an IP globally.

The idea under TRIPs was to apply IP rules equally to all member states, however developing countries were allowed extra time to implement the applicable changes to their national laws. Two tiers of transition was agreed on depending on their level of development. Developing countries such as India, Brazil, Russia, China etc. had to transition to a common standard by 2005. The transition period for least developed countries was extended to 2016, and could be extended beyond that.

The TRIPS agreement introduced intellectual property law into the international trading system for the first time, and remains the most comprehensive international agreement on intellectual property to date.

Closing Thoughts

IP protection is a complex subject. Though there are several legal means to protect one’s IP, the legal procedures are complex & expensive. Often small & medium firms in developing firms are unaware of these laws & rules. Most small & medium firms cannot afford expensive lawyers to register their IP with the concerned agencies, let alone protect their IP. So in this article, I have written mostly about how to protect their IP internally - through organizational culture and through the use of private IP.

Probably in the coming months, I will write about legal means to an protect their IP globally and discuss the various protection clauses for different types of IP.

Books on IP:

I recommend the following books on IP & IP protection. There are lots of books on IP - but these are what I consider as the most essential.

• Intellectual Property Rights, the WTO and Developing Countries: The TRIPS Agreement and Policy Options by Carlos M. Correa
• Poor People's Knowledge: Promoting Intellectual Property in Developing Countries (World Bank Trade and Development Series) by J. Michael Finger and Philip Schuler
• Intellectual Property in the New Technological Age by Robert P. Merges, Peter S. Menell, and Mark A. Lemley
• Intellectual Property: The Law of Copyrights, Patents and Trademarks by Roger E. Schechter and John R. Thomas
  

Creating a Culture for Innovation and Protecting Intellectual Property - Part 1

"Creativity, it has been said, consists largely of re-arranging what we know in order to find out what we do not know." George Keller

Recently I received an email asking: Can anybody tell me the "Role of Human Resource Development in creating a culture for Innovation and Protecting Intellectual Property?"

This question is a very very complex one. There is no simple answer - to effectively answer this one needs to understand the concept of creativity and innovation. Therefore I decided to write down the answer in a way as simple as possible. This set off a train of thoughts that eventually resulted in today’s blog. This article is not a complete answer for the question - but it gives a guideline to find the final solution.

What is creativity?

To begin with lets examine the concept of creativity. Creativity can be best defined as "Creativity is a process involving the generation of new ideas or concepts, or new associations between existing ideas or concepts. From a scientific point of view, the products of creative thought are usually considered to have both originality and appropriateness."

An alternative, more everyday conception of creativity is that it is simply the act of making something new with is useful and appropriate.

Although intuitively it is a simple phenomenon, creativity is in fact quite complex. Unlike many phenomena in science, there is no single, authoritative perspective or definition of creativity. Unlike many phenomena in psychology, there is no standardized measurement technique.

Organizational Perspective of Creativity

Today organizations thrive on creativity. Entire high tech industry, pharmaceuticals, construction industry, architecture firms, publishing houses, art dealers, movie industry, music industry all are dependent on creativity for growth and survival.

From an organization perspective - few organizations are more creative than others. 3M, Google, Yahoo and Apple have become icons of corporate creativity. But creativity is not limited to these companies alone, IBM, Intel, AMD, Microsoft, Oracle, and a host of others file hundreds of patents every year. This implies that creativity can be imbibed into the organization.

In the context of creativity in organizations, it is useful to explicitly distinguish between creativity and innovation. In such cases, the term innovation is often used to refer to the entire process by which an organization generates creative new ideas and converts them into novel, useful and viable commercial products, services, and business practices, while the term creativity is reserved to apply specifically to the generation of novel ideas by individuals, as a necessary step within the innovation process.

Innovation begins with creative ideas, creativity by individuals and teams is a starting point for innovation; creativity is a necessary but not sufficient condition for innovation.

What is Innovation?

There is no single definition for innovation. Definitions for innovation include:

• The process of making improvements by introducing something new
• The act of introducing something new
• A new idea, method or device.
• The successful exploitation of new ideas
• Change that creates a new dimension of performance

Often invention is confused with innovation. Invention is creation of new tools. Where as innovation includes invention and a lot more. Innovation includes invention of something new, developing a new use for existing use, developing a new process or a method to solve existing problem and economic value creation from creative ideas.

From a business point of view, the last point is most important: Creating economic value by new means is innovation.

Innovation in organizations

Innovation typically involves creativity, but it should not be confused with creativity. Innovation involves acting on the creative ideas to make some specific and tangible difference in the domain in which the innovation occurs.

For example, Amabile et al propose:
"All innovation begins with creative ideas . . . We define innovation as the successful implementation of creative ideas within an organization. In this view, creativity by individuals and teams is a starting point for innovation; the first is necessary but not sufficient condition for the second".

For innovation to occur, something more than the generation of a creative idea or insight is required: the insight must be put into action to make a genuine difference, resulting in new or altered business processes within the organization, or changes in the products and services provided by that organization.

Types of Innovation

As mentioned earlier, innovation is much more than invention. This implies that there are several types of innovation - companies need not invent new things & yet be innovative. For example, DELL innovated the direct sales for computers. Dell did not invent the computer, Dell did not invent direct selling. Dell innovated a new business model - selling PCs directly to customers.

Types of innovation

• Product innovation, involves the introduction of a new good or service that is new or substantially improved. This might include improvements in functional characteristics, technical abilities, ease of use, or any other dimension.
  
  
• Process innovation involves the implementation of a new or significantly improved production or delivery method.
  
  
• Service innovation, is similar to product innovation except that the innovation relates to services rather than to products
  
  
• Business Model innovation involves changing the way business is done in terms of capturing value e.g.
  
  
• Marketing innovation is the development of new marketing methods with improvement in product design or packaging, product promotion or pricing. E.g.. Sears introduced catalog sales. McDonalds innovated joint marketing promotion with Disney.
  
  
• Organizational innovation involves the creation or alteration of business structures, practices, and models, and may therefore include process, marketing and business model innovation.
  
  
• Supply chain innovation where innovations occur in the sourcing of input products from suppliers and the delivery of output products to customers

For example, financial innovation of adjustable mortgage rates created a whole new way of financing a house. Another example of financial innovation is co-promotion credit cards where customers can earn points/airline miles by using a credit card.

Disruptive Innovation and Incremental Innovation

In the world of business, we often hear the term "Disruptive Innovation". Disruptive innovation are the ones which challenge and destroy the existing business systems. For example MP3 players destroyed the market for music CDs and Walkman. In general, disruptive innovation tends to bring in radical/revolutionary changes in the business environment.

Disruptive innovation are relatively rare - when compared to Incremental innovation. Incremental innovation refers to slight improvements to existing products/services. For example Video iPod is an incremental innovation over the original iPod.

Sources of Innovation

Having defined creativity & Innovation, we can now discuss about sources of developing an innovative organization. For most part of the human civilization - there has been two sources of innovation. One is manufacturer innovation - where a business creates a new product to sell to customers.

The other main source is customer induced innovation. In this case customer develops a new use for the existing product or demands a new product which meets his needs. A new source of innovation is now becoming popular - Customer as Co-Innovator .

Innovation by businesses is achieved in many ways, with much attention now given to formal research and development for "breakthrough innovations." But innovations may be developed by less formal on-the-job modifications of practice, through exchange and combination of professional experience and by many other routes. The more radical and revolutionary innovations tend to emerge from R&D, while more incremental innovations may emerge from practice - but there are many exceptions to each of these trends.

Customer innovation though widely popular - but rarely credited to a individual customer. For example iPod or personal MP3 player was actually a customer induced innovation. While the MP3 format was a manufacturer innovation. MP3 format was developed by Berlin University research labs.

Whether innovation is mainly manufacturer driven or customer driven. But creating economic value from that innovation is totally dependent on the internal working of the organization.

Creating an Innovative Organization

Creating an Innovative organization starts with having a innovative culture - the values, rules, customs and incentives that govern the way we work and the way organization functions.
In the world of innovation, culture comes down to shared attitudes, values and beliefs. It determines how well we encourage creativity, risk-taking, entrepreneurship, and networks to share knowledge and ideas. In short cultures which encourage creativity tend to be more innovative.

Innovation also depends on:

• Human capital: i.e., People and their skills. Organization must hire creative people - with appropriate skills.
  
  
• Organizational and physical infrastructure: R&D labs, leadership and the environment.
  
  
• Financial infrastructure: Willingness to invest money & resources for innovation.
  
  
• Legal infrastructure and civil justice system to protect the intellectual property. (I will discuss more about Intellectual property protection later in the next part.)
  
  
• Social capital: Relationships between people and between organizations. Innovation rarely takes place in vacuum. People should be able to network with others - both within and outside the organization and between organizations to exchange ideas - that eventually foster innovation.

Human Capital

If one were to look at the centers of Innovation in the last century, one will see that most innovation came from a few select places in Europe, Japan, Asia and US. These geographic centers such as Silicon Valley, Boston, Cambridge, Berlin, Moscow, Bangalore etc. have highly educated & talented people. It is this talent that is driving companies, capital and more people to these locations - and that is inturn creating the right ambiance for innovation.

Innovation within an organization will never occur without talented & creative people. Organizations have understood this concept and have invested in developing educational facilities, training facilities within their organization and also in the local neighborhood. For example companies( e.g.. HP, SUN) in Silicon Valley fund local universities (Stanford, UC Berkeley, etc.) - these universities in turn train new individuals (Larry Page, Jerry Young etc.) and they in turn create new companies (Yahoo, Google, et) and the cycle continues.
Innovative organizations are committed towards developing Human Capital.

Organizational and Physical Infrastructure

To be innovative organizations need the right infrastructure - in terms of R&D facilities, labs, computers, software etc. In addition to physical infrastructure, it also needs organizational support in form of leadership & guidance. Having a strong support from the top leadership within an organization helps to encourage innovation. Leadership support ensures that the right infrastructure for innovation is in place and people have access to it. Leaders also inspire employees to try something new & be innovative.

For example look at Google, employees are encouraged to spend 20% of their time on pursuing their own ideas. This has led to a whole lot of innovative ideas at Google: Google maps, Google earth, Google mail, Picasa, etc. The leadership attitude at Google can be seen from the statement from Larry Page: "We're willing to tolerate that ambiguity and chaos because that's where the room is for innovation."

Financial infrastructure

Access to financial capital is key to innovation. Most innovators need money to test & try out their innovation. Without this investment, new ideas will never be implemented - and will remain only on paper. If one looks into Silicon Valley, it becomes clear that Silicon Valley thrives because of venture capitalists, bankers, Corporate R&D funding, and Government R&D funding. Bangalore became a technology center primarily because of all the investments done by the government in developing the various R&D centers in the city. In general, it can be said that to encourage innovation one needs to:

• Create an environment that encourages more financial institutions and other private sector sources to lend money to business - both large, small and new startups.
• Encourage new private sources of capital and more financial institutions, to lend to and invest in new businesses.
• Encourage venture capitalists and angle investors to setup operations.
• Reduce regulatory barriers and regulatory costs for new business.
• Encourage innovation via tax incentives.

Legal infrastructure and civil justice system

Innovators need legal protection to protect their new ideas from piracy. In the initial period after the innovation, individuals or organizations must have protection from piracy - else larger organizations with huge resources can hijack the innovation for profit. Yet the value of the innovation must become a shared good. This is why the patent laws are created and the patent law protection is not permanent - and has a definite time span. Having access to patent offices, ability to quickly file for patents and a strong legal system to protect the patents, trademarks and copyrights is essential for encouraging innovation.

Social Capital

Innovation rarely takes place in isolation. Innovation needs a right social environment in terms on culture, community encouragement and customer needs.

Today most of the innovative companies tend to be clustered in few geographic locations. Such clustering allows employees to interact with others, share ideas, develop ideas, validate ideas and improve ideas during the process of innovation. Clustering of companies also provides a sense of security to employees in terms of employment - as they can find an alternate job if their current idea fails. Thus innovative people are attracted towards these clusters.

Clustering of companies in one geographic location also allows for networking of organizations. Startups can network with Venture capitalists, with legal firms, with banks, with business consulting firms etc. It this kind of networking which allows startups to flourish and grow in the initial stages.

Clustering can improve competitiveness and innovation. Companies and communities can benefit from increased competition. Thanks to increasingly sophisticated technology and telecommunications, the competition is becoming more fierce - thus encouraging greater amount of innovation. Competition creates a demanding environment. Knowledgeable customers armed with a choice of suppliers tend to force companies to innovate.

The best network for innovation can be seen in the Silicon Valley of California - where there is a well established network of universities, companies, legal firms, financial companies, venture capitalists, and government R&D centers. By contrast, companies that enjoy monopolies - have failed to innovate.

Innovation & Culture

Among all the factors, Culture probably plays the most important role in innovation. By culture, I mean the social culture in the general society. How does the society treat new ideas? Does it encourage it? Does it discourage it? Does it scorn on people who do things differently? Does it encourage people who are different?

Innovators come from societies which is open for new ideas, new ways of doing things. Culture reinforces the behavior and strategies required to succeed in any given environment. But environment dictates culture, too. If we live in a business environment that favors innovation, then such behavior will become prevalent. There is an old saying, which goes: "Necessity is the mother of invention." The more demanding the environment in certain respects, the more likely the organization or individual is to respond innovatively.

Closing Thoughts

Innovation requires creative thought, technical & scientific ability, financial skills, market demands and customer acceptance. This can be created only through innovative communities - which is network of organizations and individuals.

Now coming back to the original question: Can anybody tell me the "Role of Human Resource Development in creating a culture for Innovation and Protecting Intellectual Property?"
Innovation is always a human endeavor. Without the right human resources - people and people skills, no innovation is possible.

(I still haven’t answered the question on protecting intellectual property - I will do that in the next part of this article.)

Also See

1. Customer as Co-Innovator
2. Global R&D Network
3. Virtual Scale - Alliances for Leverage
4. Cutting Edge R&D in India
5. Understanding Financial Value Creation
6. Innovation A Core Business Concept Part-1
7. Innovation A Core Business Concept Part-2
8. Collaborate to build Competitive Advantage
9. Globalization of R&D
10. Organization Development in High Tech Startups
11. The Value of Talent
12. Giving Your Top Performers a Reason to Stay
13. Improved Cross-cultural Communication Increases Productivity
14. Managing Diversity for High Performance
15. Promoting Organizational Change Through Communication
16. Hiring in high-tech firm: Build Vs Buying Talent

Managing Virtual Teams - Use of Collaboration Tools

Today virtual project teams are composed of people separated by vast distances who communicate primarily by computer and telephone, and is more the norm than the exception. They use networks to develop a sense of community among project team members who may be far-flung geographically and to keep channels open to various regional and functional units that can contribute to the project or be impacted by it.

Web enabled project management software helps virtual project teams plan and track progress of widely dispersed project components, keep the various components in sync with each other, manage project change across the board, and deter local scope changes from overwhelming the project. Project teams today move faster and work under more pressure than ever before. To expedite information sharing and to accelerate decision making, project managers are using team collaboration tools.

Collaboration tools also help manage multi-cultural teams. But only when used with care. Most virtual teams consists of culturally diverse members - who can understand at least one common language. The project manager must therefore establish a common communication standard which is acceptable by all members. I prefer using standard communication templates for inter-team communication. These templates does not allow use of local phrases or slangs, and enforces a standardized communication between the team members. The downside of these templates is that one loses the wealth of eloquent language in communications - but on the positive side, a simple straight forward communication helps manage multi-cultural teams better.

There are two such tools that are ideal for small firms & startups. One is Proworkflow and the other is Agenda. ( However, these tools may not be ideal for large enterprises - as they will not meet several requirements that are typical of a large organization)

Project Workflow Management

Today I work in an IT services company - where teams are distributed all over the world. A small part of the team works along side with the customer while 90% of the team works far away from the client. In such an environment, the complexity of project management is so high that it is actually impossible to manage a project without a good project workflow management software.

Recently, I had the opportunity to implement a Project Workflow Management software for a project at British Telecom company. In my previous company too we had implemented a customized project management software - called "OpenAccess".

A web based project workflow management software enables all members to login and coordinate their activities, the project manager can assign tasks to members and monitor the progress. The project status and tasks are communicated via email in a standardized templates - this minimizes miscommunication and improves team coordination.

Project workflow management tool should do the following:

• Create/Edit projects
• Assign resources/people to projects
• Create tasks & assign responsibility to complete those tasks
• Monitor project status - Track the current status w.r.t allocated time for the task
• Warn on overdue tasks - via emails & color coded indicators
• Generate quick summary on timely basis
• Manage time sheets for members - to help resource management
• Manage billings for contractors and consultants who are shared across projects
• Generate invoices against completed delivery
• Manage contacts for project members
• Provide a Project bulletin boards to share project notes
• Generate detailed project reports

Project Reporting Software


Every project management software needs a good reporting system. Project reporting tools are vital for the smooth functioning of Project management office and effecient resource management. Typically a project reporting software should be able to:

• Generate the reports about employees' and their teams' tasks;
• Export, Print or Email all reports.
• Project Summary - Tasks and status including staff reports.
• Project Summary -Includes all Staff Time Records
• Summary of all project’s financial details: Invoice, unpaid, overdue etc.
  

Closing Thoughts

Managing virtual project teams needs software tools to improve comminution and coordination between team members. In my experience - these tools are vital for the success of International projects where people of multiple nationalities are working across geographies. These groupwares help organizations mitigate cultural differences and overcome cross-cultural communication problems.

When Brand Buying is not a Good Idea

I have written quite some articles on Brand value and brand building. Recently EE Times published an article on the danger of buying a brand name - BenQ purchased Siemens cell phone unit mainly for its brand name and paid dearly for it.

When Brand Buying is not a Good Idea

by Mike Clendenin

EE Times (09/29/2006 9:44 AM EDT)

TAIPEI, Taiwan — Taiwan's BenQ is learning some hard lessons following the failure of its BenQ-Siemens brand, but its vision to build a global brand remains intact.

When BenQ took over the troubled handset division of Siemens a year ago, it was losing about $1.5 million a day. Things were so bad that Siemens paid BenQ to take it off their hands.

But nothing is free. BenQ has paid dearly for the experience of trying to fast-track its global brand-building effort. During the last 12 months, it has ponied up about $760 million to keep the former Siemens unit alive. Eventually, enough was enough. BenQ Chairman K.Y. Lee pulled the plug, finally realizing that the Siemens unit could not help BenQ become a global player.

It was an expensive lesson in brand building, which many Asian manufacturers will note as they plan survival strategies. Squeezed by thinning margins in the ODM business, or in more mature products like PCs, some of the larger Asian companies are flirting with the idea of building brand names. Problem is, it's a long-term commitment, and many of these companies feel time is short.

That's pushed them to buy distressed assets of companies that already have brand names. China's Lenovo bought IBM's PC division, TCL partnered with Thomson and BenQ grabbed Siemens. These deals also come with co-branding arrangements, similar to what we see with Sony Ericsson.

Unlike Sony Ericsson, which was able to stanch losses and rebound with creative designs, the success of these three deals seems mostly based on severe cost cuts—a typical manufacturers' strategy.

But there are no short cuts to brand building. Brands are built on trust, and trust derives from quality and creativity, not cost cutting. A car salesman recently told me that a car can be three things—good, fast and cheap—but customers usually need to choose two of three.

BenQ will have to make similar choices if it wants to build a true brand. I suspect we haven't heard the last from Mr. Lee. He has a good vision and is a risk-taker. Hopefully, he will have the patience and peer support to keep BenQ on the path to a successful brand name.

It's the right course, but getting there won't be fast or cheap. However, if BenQ in it in for the long haul and everything that entails, then consumers will slowly realize that their products are worthy of the BenQ name.