Profiting from innovation and the intellectual property revolution Gary Pisano 2006 GROUP 2​ Juhana Harmanen 535436​ Helena Henno 82813N​ Elli Leino 506096​​ Valeriya Zhuvertseva K94840

Review of PFI (Profiting from innovation ) by Teece 1986 The paper is a classic in theory of innovation. It brought together strategic management and innovation The purpose of the paper was to answer the question why innovators sometimes fail to profit from an innovation they have made It also created a framework for innovator companies to identify how to deal with complementary assets to minimize the risk of being displaced by imitators

Teece’s framework in short There are two features that define wether a company is capable to capitalize on an innovation it has made: Appropriability regime: Exogenous mechanisms to protect innovations and the possible corresponding returns Tight or weak Complementary asset position: Having other (complementary) assets downstream or upstream the value chain eg. delivery chain or manufacturing plant

Tight approprability regimes: Patenting, licencing Pharma Petrochemicals Copyrights Artwork Texts Trade secrets Recipes Processes

Weak approprability regimes: Cababilities-based approaches to strategy (innovator vs imitator, and mergers & acquisitions) Failure: EMI vs GE Medical Systems race in CAT Scanners (X-ray) When: 1970s EMI as technological and market lead Problem: EMI couldn't meet increasing demand, didn't have sufficient patents / licences Solution: GE reverse engineered and utilized its complementary assets (large-scale manufacturing) Result: EMI was unable to sustain lead followed by GE acquiring EMI

Weak approprability regimes: Cababilities-based approaches to strategy (innovator vs imitator) Failure: Intel vs Japanise rivals race in DRAMs When: Leader and pioneer in DRAMs in 1970-80s Problem: Weak patenting / becoming public, and nsufficient process devevelopment and manufacturing ramp-up Result: Japanise rivals with sufficient manufacturing capacity invaded the markets with cheaper replicated products Success: Intel vs AMD race in microprocessors When: Invented microprosessors Problem: IP position eroded and enabled rivals due to licensing Solution: Learned from previos failure. Had already built the process development and manufacturing needed to stay ahead! Result: AMD is able to reproduce and replicate. Intel is able to produce continuos improvements and ramp-up production

Weak approprability regimes: Alliances and networks Success: A large pharmaceutical firm Merck vs Private firms in codifying human genome When: During the period of codifying the human genome in the 1990s Problem: Private firms were attempting to patent the genes in order to earn a profit from it Solution: Created a public database of the human genome in collaboration with Washington University Result: Avoided a sever value impairment of their complementary asset positions

Is PFI still valid? Globalization has shifted the environment in favor of innovation importance Competition is tougher due to fast imitation and development of similar or even better products of the same innovation "the limits of what markets can coordinate are at the heart of what a firm must organize in order to profit from innovation" - Teece (2006) Introduction to the research policy 20th anniversary special issue of the publication of "Profiting from Innovation" by David J. Teece

New perspective by Pisano The nature of appropriability regimes is changing: They are no longer given but can be shaped by the innovator Exogenous perspective Endogenous perspective Appropriability regime PFI (Teece 1986) (Pisano 2006) Innovation IPR strategy Strategy Organization structure Complementary asset position

The changing nature of appropriability regimes Endogenous appropriability regime App industry and network effect VS VS

Thank you!