Contribution of IXAS Conseil to a European Union Seminar on Innovation Management

Launching Projects... Management of Risks / Opportunities Assessment & Methodologies

Conference given at the European Union DG Research, BRITE EURAM Contractors seminar,
Delphi, Greece, November '93

Pierre PICOT,
Senior Consultant, Opportunity Analyst,
&
Michel GAUCHERAND,
European Patent Attorney, Mandataire agréé, près de l'INPI, près de l’Office Européen des Brevets, près de l'OHMI

IXAS Conseil
15 rue Emile Zola F-69002 Lyon
Phone : (33) 4.78.37.75.16 Fax : (33) 4.78.92.88.58
E mail info@ixas-conseil.com

1. Introduction

In bringing a new process / product to an industrial / commercial stage, three types of obstacles may be encountered:

Technical
Legal
Economic / market related

The risks which stem from these situations are naturally very different in nature. In the past such risks were not always properly considered, because failures were not as critical as today. Nowadays, there is certainly a greater awareness of such risks from most organizations. Research & Technological Development budgets are scrutinized, whether funded by Industrial corporations or by the European Commission within the frame of its collaborative research projects..

"Hands-on" industrial experience makes IXAS Conseil convinced that awareness of the three types of risks should be present at the very early stage of the R&D activity, and during the whole development process.

But awareness is not sufficient.

True assessment of the situation (and monitoring of its evolution) in these three domains, - technical, legal and economic / market -, is the only way to reduce such risks and "predict with understanding".

Technical obstacles, in the development of a new process, may be encountered only in the advanced development phases.
Most likely, these technical obstacles will be converted into technical problems to be solved, and solved in many cases. In some cases, these technical obstacles will not be able to be solved within the time frame available or within the resources allocated, and a very promising laboratory development will turn to a semi-failure. R&D money is apparently lost, but knowledge and experience are gained.

Generally, issues concerning technical obstacles are well addressed by the R&D community, provided there is permanent peer reviewing. And the development process may be reinitiated later.

IXAS Conseil focuses its attention and support on the legal obstacles and on the economic / market related obstacles, through the implementation of

Industrial Property management and
Opportunity Analysis

which can be considered jointly or separately.

2. Legal obstacles or bars

Legal obstacles or bars, in the launch of a new process (or product), may be encountered at the start of the industrial and/or commercial phases of a new process launch or once said process has matured to a commercial success. In some cases, it may lead, in fact, to a total cessation for the future, and to the payment of damages for the past.

The French business magazine "les Echos" reported, some time ago, such a case:

"Judged guilty, by a Japanese court, of having used, without authorization, an ATOCHEM process for the manufacture of hydrazine hydrate, starting from oxygenated water, MITSUBISHI GAS CHEMICAL will have to stop the 10 000 Mt/y plant it just started in September 1991"

Clearly, the possible existence of pertinent patents, that is of intellectual property rights belonging to third parties and consequently potential patents disputes or litigation must be considered at the earliest possible stage of development. It is always surprising to see that “intelligent developments” sometime bump against the existence of unexpected rights.

But once a new process reaches industrial / commercial stage its developer should not "sleep" on his success as :

Obsolescence may occur,
Alternative processes may emerge,
New generations of the "basic" process may be developed by others.
Others may obtain patents which will bar further commercialization by the first proprietor.

Industrial Property management recognizes these facts and respond in a pro active manner, to the best interests of the party counseled.

Furthermore when licensing a process or when selling a technology, there is an absolute need to be fully aware of the differences prevailing between countries in respect to the facts that:

Cultural attitudes generate different level of awareness when it comes to the importance given to Intellectual Property Right issues. Consequently the importance given to Industrial Property matters will vary : they are highly developed in the United States, in the Northern part of Europe, in Germany, and are not integrated to the same level in the Southern part of Europe, for instance Spain.
Distinct legal systems and national practices exist within the countries considered, an even within the European Union.
Ways of handling industrial property matters i.e. patent licensing, litigation, are only partly harmonized within the Union.

Best responding to the challenge and delivering the requested support will requires, on the part of the Consultant, specific strengths and skills, particularly, the ability to:

impregnate himself with the client's corporate strategy. This is true whether the client might be a private organization or a Consortium operating under the auspices of the European Community. It becomes more and more necessary to understand the business development strategies of large corporations, as well as the strategies of the existing and potential client's competitors, in respect to industrial property management, which implies to think internationally and in terms of world markets.
determine prior third party rights. This can only be done through the questioning of international patent databases. The formulation of the questioning strategies is to be done with clear focus for maximum efficiency. One must tap core industrial process knowledge (and despite the fact that fields to be covered are wide they need to cover in sufficient level of depth).
deliver to customers tailored answers for actionable results while keeping total intellectual freedom.

As a summary, Industrial Property management can and does operate at different timing levels :

a) before start up of a project or before major resource allocation, it does determine the freedom of exploitation for a process (range, domains, geography covered, span of time, span of applications) and secures, if required, licensing agreement if restrictions are found.
b) as project proceeds,
it can recommend and secure strong patent protection as the basis of future competitive advantages and negotiate external licensing programs.

Finally,

while thinking "process", "product" and "application" should not be forgotten.
brands, trademarks can be applied just as well to a process; a branded technology is differentiated in the eyes of outside audiences.

3. Economical / Market related obstacles

3.1. Background

In the commercialization of a new process or product, economical and market related obstacles are always encountered:

for the process taken in itself (competitive process economics).
for the timing of the launch (the process comes too early, people are not ready to accept it, or it comes too late, i.e. the prospects have already invested recently in another process).
for the product made by this process (lack of sufficient real opportunities, market size).

Research work is frequently conducted without even a rough estimate of real opportunities and with the sole scientific and/or technical incentive.
According to the R&D manager of a major Chemical Corporation, over a span of time of several decades, 50 % of the projects launched failed, in "stage 5" of the R&D staging program, "stage 5" meaning that the plant was built, sales literature was prepared and field sales force was trained...Why ?
Continuing quoting the R&D manager of that Corporation,
"Identifying and verifying that the project is targeted toward a real need, not a want, is probably the area in which we must improve most ... our history shows that we invest hard in technology but wait too long, until we are in trouble, before we spend time and money on market intelligence"...

3.2. Reasons for new product failure :

Poor understanding of market need and potential price the product could command.
Poor estimate of the new product present and future competitive position.
Failure of technology.

A market oriented definition of a new product/process idea, encompassing the three above listed points, then reads as follow:
"An opportunity is an unmet need that the customer has which a company can solve and make a suitable and sustainable profit in doing so".
"Planned innovation must be profit oriented".
"If invention is a solution to a problem, innovation is the commercially successful use of the invention".

3.3. Opportunity Analysis :

The purpose of "Opportunity Analysis" is to "predict with understanding" whether a new process / product-market opportunity will reach sales and profit objectives and if so, what resources - technical and commercial - will be required.
When looking at history and using much common sense, a sort of "formula" for assessing opportunity can be designed, incorporating the following elements:

1) Need(s) of market and who has the need(s) in the access chain. Some would say "who is the problem owner".

2) Value which can be extracted from the satisfaction of the need.

3) Competitive opening.

4) Competitive advantage.

5) Trends supporting the need and threats.

6) Qualitative match of resources.

7) Quantitative match of resources.

for both, qualitative and quantitative, placed against pre-established business screens.
Some elements of the "formula" are outside oriented, i.e. clearly requiring in depth understanding of what is happening in the market place, others are more inside oriented and deal with issues relevant to the company involved.

It is important to better define theses terms:

Market needs may occure at the "fist" level of the market access channel or value chain, or at any further down stream level, for example at a sub converter level, adding a processing operation, or even way below at consumer level or at disposal stage.

Functional need, relates to what the process or product is supposed to do, what function it is supposed to perform.
When the current process/product cannot perform the function it is supposed to perform, it means that the identified opportunity is supported by a strong primary unmet functional need.
This is obviously the strongest category.
Substitution or alternative motivated by a cost saving drive come next.
Finally, second source, for pricing leverage or supply security constitute other market needs, but are naturally weaker.

A good way to frame the opportunity is to use the so called "4 parts definition" and the concept of "process / product-market". It encompasses and describes in details:

1 - The process or product or technology: expressed in generic sense, in order to better show other types of competition, not necessarily in the same area covered.

2 - The functional needs,( i.e. to do what).

3 - The customers (i.e. for whom), describing the full access channel with prescribers/original equipment manufacturers and stake holders.

4 - The geography covered (i.e. where).

Value extractable is whatever is going to be accepted as price from whoever, in the market access channel, provided it can be taken back to the originating level.

Strengths and Weaknesses Analysis is the basis of Qualitative Business Screens. They result from realistic understanding of past successes and failures and of the reasons which lead to those successes or failures.
The strengths have to be relative to best competitor in this product-market segment. The weaknesses have to be overcome prior to imagine entry in a product-market segment.

Competitive opening is the external event(s) that occurred to create the need and allow the firm to uniquely participate in satisfying the need today or within a very well defined time span.

This window of opening relates to how long the opening will remain as such, what event will close it, and whether it hinges on technology development or the passing of legislation.

Competitive advantage is the basis for maintaining the business long term versus competition. It may be patent related, that is the securing of a monopolistic position, it may be linked to a low cost position related, market franchise related. The strongest competitive advantage are those linked to arrays of patent protection creating virtual monopolistic situations.

Trends analysis relates to the major long run external trends that specifically support the opportunity or hinder the opportunity (threats).

Match of resources :

Qualitative match of resources is how well the firm's strengths match those required by the opportunity to develop a solution to the need.
Quantitative match of resources is how well the size, profitability and projected market share of the opportunity match the goals defined in the business screen.
Critical qualitative and quantitative issues are the sole issues that clearly make or break the opportunity, all other problems appearing as marginal, it is fundamental to focus on those.

The issues addressed in Opportunity Analysis are definitely

Misplaced focus, that is more focus on product that on market, or differently said, inside-out rather than outside-in, technology driven rather than customer oriented.
Inadequate depth of understanding of market needs.
Lack of systematic and efficient procedures.

The methodology followed in Opportunity Analysis is summarized below:

1- Formulation of critical hypothesis (of unmet needs, of competitive opening, of match of resources...) and their framing according to a logically articulated model, i.e. "There is an unmet market need because...".

2- Testing / Validation of the critical hypothesis via selective in depth interviews conducted outside.

3- Reviewing research and re-orientation if required.

4- The output of Opportunity Analysis is a recommendation of resource allocation (yes or no or re-orientation toward a different process / product - market segment).

Before launching an Opportunity Analysis, which is a sort of exploratory research requiring two to three months of expert work), a prioritization of the "competing - for - resources" opportunities is recommended.
This prioritization process, first, maps the opportunities with respect to internal strengths to be deployed and weaknesses to be fixed, versus the external supporting trends and second, analyses the magnitude and nature of the competitive opening - i.e. what is changing in market place -, for each opportunity.

Prioritization is an evergreen process as situations are permanently changing.

4. Conclusions

The stated objective is to reconcile R&D - marketing - legal, and to integrate the contribution of each, at an early stage of the development process, in order to reduce waste of resources.

Implementation of Industrial Property management will allow the determination of the right of practice for a process or product before allocating major R&D resources as well as securing of long lasting competitive advantage through patent protection as work proceeds.

Implementation of Opportunity Analysis will allow the so called "predicting with understanding" whether a new process / product - market opportunity will reach sales and profit objectives and if so what resources will be required, by focusing on the in depth understanding of market needs and value extractable, recognizing concepts of competitive opening.

Both, significantly reduce the risks inherent to the launch of new projects. Such systematic approaches are more and more embedded in advanced innovation processes implemented by large successful innovation driven companies.

There is however no substitutes to entrepreneurship.

We thank you for your attention and wish you a successful seminar and much success in your research projects.
We thank the European Commission for the opportunity given to sensitize such a fine audience on the issues of risks inherent to the exploitation of RTD projects.

Reference and further reading :

"Planned innovation - A dynamic approach to strategic planning and the successful development of new products" by Frank Bacon and Thomas Butler, University of Michigan 1981.