Ask someone to name a form of intellectual property (IP) and they will inevitably mention one of the more traditional, registrable forms of IP – patents, trademarks or design rights. Which is why, looking through the table of contents in August’s issue of Global Corporate Venturing, I could not help but pause at the following headline: “Are partners worth more than their firms?”
The article, written by academics Boris Battistini and Martin Haemmig, refers to a partner’s skillset, or “intangible quality”, a less traditional form of IP composed of assets such as know-how and critical business relationships which are increasingly being recognised as a valuable business commodity.
But these knowledge-based forms of IP are often assets of individuals rather than the company they work for.
In today’s information-based economy, knowledge and relationships can be the crucial factor in creating a sustainable competitive advantage – so what does it mean for a company when that valuable knowledge can simply walk out the door or, worse, walk across the street and through the door of a competitor?
Knowledge has become a key competitive advantage in the marketplace – after all, if certain information is important to you, it is likely to be valuable to your competitor. But beyond applying for patents or trademarks, many companies fail to recognise or protect these less formal types of IP. Recognition and identification, while perhaps scarce, is not difficult to rectify. Awareness is, undoubtedly, the first step. No effective risk management programme can be implemented without first recognising that your company’s most valuable strategic assets are made up of intangible, informal IP. Once a company acknowledges that it possesses these assets, the next step is to complete an inventory of its core IP, usually via an IP audit. Apart from inventions or branding strategies, a company needs to ascertain how valuable its collective know-how, trade secrets and contacts are to its business or, critically, how valuable they might be to a potential competitor’s business.
But here is where the difficulty arises. While you might be certain that these assets are critical to your business, can you be certain that your business owns them? Your company’s differentiating knowledge and expertise – that asset class that we refer to as know-how – may very well be the internalised expertise of your firm’s employees and executives, as the August article points out. So how do you maintain or repeat a venture capital (VC) firm’s, or corporate venturing unit’s, performance when a “partner’s human capital is two to five times more important than the VC firm’s organisational capital”?
While tacit knowledge, that internal intuition that defies recording, is unlikely to be a company asset, explicit knowledge consisting of facts, rules, relationships and policies are capable of being faithfully codified. Recording know-how is the critical first step, even where the information is used by a small portion of the trading company. When this codified knowledge is shared across the company and its employees, via servers or intranet, it then transforms into organisational knowledge, a repeatable and valuable asset that can underpin a company’s competitive advantage regardless of employee exits.
Organisational knowledge can take many forms, including training programmes, systems and procedures, technical specifications, drawings, FAQs or even negative know-how – negative results, or what does not work – and allows employees to work at equilibrium. It can also take the form of “matrices” which narrate which employee is best suited to answer a question in a particular sector or industry. For a corporate venturer, it may include information such as contacts, technical or sector-specific knowledge, best-practice approach to conducting diligence on a business model or general market understanding – information which, if recorded, can be a key differentiator for that corporate venturing unit.
But as I mentioned in my first column, it is not enough merely to recognise these assets – proper protection and enforcement of these IP assets is the key to maintaining their value. Creating a proprietary rights policy and inserting clauses into employee contracts about the codification of critical know-how can go a long way to ensuring key knowledge is kept within a company. Similarly, conducting exit interviews and reminding departing employees of non-compete clauses or obligations relating to the deletion of all proprietary information from their personal electronic devices means this critical knowledge cannot be appropriated as a personal asset.
Remember, information is never more valuable than when it is turned into knowledge, and, in turn, knowledge is never more valuable than when it is turned into properly protected organisational knowledge.