VALUE PROPOSITION IN KNOWLEDGE ECONOMY ( Class notes) A.S.

Rao

SPJIMR 16/7/2006

Value creation Prof. Rebecca Henderson of MIT portrayed Strategy as consisting of Value creation, Value capture and value delivery. He explained that to create value, a firm needs to : Understand how customers needs evolve Understand how technologies evolve Develop world class products and services that meet customer needs T-CUBE-INTEGRATING TLC, MARKET SEGMENTS AND INNOVATION STRATEGY
To understand the complexities involved in positioning a firm, small or big, one must look at all the three dimensions; Technology Life Cycle (TLC), Market segment and Innovation strategy. TLC side of the cube has 3 stages- fluid, growth and maturity. Market has 3 basic segments early adopter, early majority and late majority. Similarly innovation has 3 strategies- first to market, fast second and imitation with improvement.

The technology life cycle (TLC) is the cycle of technology. The technology of a TLC is the major technology like Steam engine, IC, Transistor. TLC traces technology from the stages of the first idea, to its development and commercial exploitation. It is a useful concept that brings out the evolutionary character of technology. The evolution is influenced by the determinants of technology change.

X-axis -STAGES IN TECHNOLOGY LIFE CYCLE Inception point

Basic and applied research, precede development of a technology. Science based research is a quest for knowledge.

Stage 1 Technology Development

Here research shows promises of an emerging technology. The firm evaluates the potential benefits and continues with the development based on the following considerations: 1. The technology has potential commercial application(s) 2. That application fits into firms strategy 3. The firm has the necessary financial, technical and managerial resources to pursue the lead to its logical conclusion. Sometimes the development could achieve results other than planned or the potential holds promise in unrelated application.

Stage 2 Technology Application

The technology is ready for application. The process technology and the end product can now be recognised by the engineers and technologists. It can be used to develop a new product or process. Here the firm incurs significant costs for developing associated process and product technologies. The extent to which a technology is perceived as essential to the firms present or future activities is the main decision making variant. This stage is characterised by higher costs and an element of risk and uncertainty with respect to: - Market acceptance of the product - Further development work required - Lack of knowledge of competing and substituting technologies - Actual cost of production - Value of the technology.

Stage 3 Application launch

This corresponds to the performance maximising stage of TLC. The firm will be developing technology in small evolutionary steps to meet the market requirements. There are also inputs of value analysis. This is also the fluid stage with many firms working on the same technology and each designer assuming that his design will be the ultimate winner. The technology risk is enormous and market potential unclear. Customers set a price on the technology by setting the price of the end product. Customers compare products in the market place and compare the technologies. The technology becomes more easily recognised by other firms engineers. This stage is characterised by : - Other companies moving into the end product market with similar or substitute products. These are made with similar or competing technologies. Thus the competition between technologies commences. - Battles for technology market size grows - Technology becomes known in all countries with similar level of development. The widening and depth of the technology leads to the fourth stage of the TLC.

Stage 4 Application growth

This is the stage of sales maximisation. The demand takes off with the emergence of a dominant design. With the technology risk reduced and market attractiveness clearer, more and more firms will join the fray as independent developers or licensees of dominant design holder. The leader tries to take advantages of network externalities as a compensation for diluting his hold on the technology. The leader tries to sell technology to ensure it becomes industry standard. This is like market leader concentrating on increasing the overall market size. The benefits are similar, technological resources are not wasted by continually updating existing technology to

fend off attacks by competitors. Supply industries tune into standard requirement. This reduces cost of interfacing required with unmatched technologies. Public is more likely to accept the company technology, its products and other new products it markets based on this technology. This reduces advertising expenses. Gaining a market share with a technology in the early days of TLC is a sure way of launching a market share based strategy. Standardisation means firm maximises its license revenue in addition to increasing its own product sales. The product innovations will continue, they are mostly competitor led. Great growth in customer demand coincides with greater interest on the part of competitors. They are also of aware of high cost of developing alternative or improved technology and would like to take technology on license. The value of technology is maximum at this stage. Initially Dolby sold its technology to professional users in the form of products. It was a small market and the competition did not take much interest. But when it developed technology applicable for consumer cassettes, it decided to license technology. Its fee was 50 cents per circuit and two circuits are required in a stereo deck. It did not manufacture the products, it is not competing with its licensees. They ultimately enforced standardisation when Philips promoting a competing technology gave it up and took license.

Stage 5 Technology maturity

The technology reaches maturity, the product innovations mostly are saturated as a result of not only the leaders actions but also of his licensees and others accepting the same dominant design. Original technology has been modified and improved not only by the originator but by competitors too. Related technologies of the product have also been well developed. The firms still attempt to derive competitive advantages based on process innovations. The technology becomes fully embodied and ready to transfer to less developing countries. The market in developed countries may saturate but new markets open in developing countries.

Stage 6 Degraded technology

Technology becomes a common knowledge, widely disseminated globally. Many consultants develop capabilities to offer this technology. For the Technology cube, three stages of technology are chosen- fermentation

stage, growth stage and maturity stage. Y-axis-MARKET SEGMENTS Basic segmentation
Rogers model lists Innovators, Early adopters, Early majority, late majority and Laggards. Adopters differ by social, economic status, affinity for risk, knowledge, complementary assets, interest in the product. For the Technology cube, three market segments are selected- early adopters, early majority and late majority.

Characterizing the segments Innovator Early adopter Early majority Late majority Laggard

Technology enthusiast visionary pragmatist conservative skeptic

Z-axis-INNOVATION STRATEGY
First mover or fast second There are essentially two strategies, be the first or not-to-thefirst to enter market . For those that do not want to be the first, they have choice in terms of product differentiation or just imitate and improve. They also have choice of time, enter at growth stage, maturity stage etc. -------------------------------------------------------------------------------------------------Innovation strategy

First mover strategy Fast second with product differentiation

Fig : Innovation strategy

Late entry strategy

Imitation with improvement

Imitation

--------------------------------------------------------------------------------------------------------a) First mover strategy

Carpenter and Nakamoto, described a learning model of preferences formation for new products; buyers approach new products with `weakly formed preferences. Pioneers earn a competitive advantage through this process in two ways. First, a pioneer develops the best preference position with consumers by shifting the taste distribution towards its position and by influencing the attribute weights which buyers use to evaluate brands in the category. Second, because the pioneers has a central role in consumers preference formation in the category, the pioneer becomes the prototype for brands in the category; in terms of high-tech they become the `standard. Pioneering advantage, however, is realized only if the first mover succeeds in framing consumer preferences. If the first mover fails at that task, the field is left open for later entrants. Thus pioneering advantage is not automatic. It needs to be earned through the execution of competent marketing programmes. First entrants have the first mover advantages, they can appropriate the innovation through patents and they generally have preferred access to complimentary assets and positive image, which attracts talented people. Ex- Sony, 3M, Philips. They tend to have higher market shares than late entrants. Their best defence is to keep innovating, to continue to improve the product itself in order to leave as little room as possible for late entrants. Since 1979, when Sony introduced the Walkman, it has developed 227 models by 1990, about one every 3 weeks. Positioning is another issue, firms like Xerox positioned their products at the high end. It allows competitor to start at the lower end and gradually expand the size. Late buyers are frequently quite different from early buyers in their wants and values and feature-set preferences.

b) Fast second strategy

Studies have shown that almost half of market pioneers have much lower market share than early market leaders, generally firms following defensive, fast second strategy. They are as ready as the first movers to enter the market, but they wait for the venturesome first mover in initiate the market education process. While the first mover is clearing his bugs, the defensive strategy people quickly move with a differentiated product. They have strong engineering capabilities and aim at market share. This strategy is generally more successful in industrial product innovations.

c) Imitator strategy
Steven Schnaar studied 28 product cases where the pioneer failed to hold a long term market leadership and was sometimes driven out by later entrants. Table below is an analysis by Steven Schnaars as to how the imitators surpassed the pioneers .

Table : success of imitators

Product 35 mm camera Automated tellers Ballpoint pens Caffeine free drinks CAT scanner Commercial jets Computerized ticketing Credit/ charge cards Diet soft drinks Dry beer Food processors Light beer Mainframe computer Microwave ovens

Lower price X X

Imitate and improve X X X X X

Market power X X X X X X

X X X X X X

X MRI X PC X Pocket Calculators X VCRS X Word processing software

---------------------------------------------------------------------------------------------------Best approach for a late entrant is to imitate and improve. Pure imitations, blatant knockoffs do not work well. Lower price matters if market can also be expanded like in Micro ovens. Innovation is all about finding new ways to do things and to obtain strategic advantage, so there will be room for new ways of gaining and retaining advantage.

Value creation from technology license

The ultimate goal of the technology buyer is to acquire competence to survive / grow in his market, technology acquisition, adoption, adaptation are all means to achieve this goal. Competence and Capability and used in an interchangeable manner. Capabilities refer to the capacity for a team of resources to perform some task or activity or also the capacity of a firm to deploy resources using organizational processes to affect a desired end. Capabilities are firm specific and developed over time, through complex interaction among resources (e.g. manufacturing flexibility) and responsiveness to market trends (highly reliable service). Technological capabilities are traditionally seen to encompass Production capability, investment capability and innovation capability. Production capability: Production management to oversee operation of established facilities Production engineering to provide information required to optimise operation of established facilities, including raw material control, production scheduling, quality control, trouble shooting and adaptations of processes and products to changing circumstances Repair and maintenance of physical capital according to regular schedule and as needed. Investment capability: Manpower training to impart skills and abilities of all kinds Investment feasibility studies to identify possible projects and ascertain prospects for viability under alternative design concepts. Project execution to establish or expand facilities, including project management, project engineering (detailed studies, basic engineering and detailed engineering), procurement, embodiment in physical capital and start-up. Innovation capabilities: Basic research to gain knowledge for its own sake. Applied research to obtain knowledge with specific commercial implications. Development to translate technical and scientific knowledge into concrete new products, processes and services. In each company, the way in which distinctive competence, organizational resources and organizational values are combined is unique. The firm must acquire functionally related competencies; these are the technical skills, which enable the company to invest its services or products with unique functionality, for distinctive user benefits. In addition the firm must acquire integrity related competencies and market access competencies. Integrity related competencies are quality, reliability, cycle time management etc, which allow a firm to do things more quickly, flexibly or with a higher degree of reliability than competitors. 7

Market access competencies are management of brand development, sales and marketing, distribution and logistics, technical support etc, all those skills, which help to put a firm in close proximity to its customers. The diversity of skills needed to develop a competence, make it imperative for the firm to involve a large number of people in the chain of events from `technology acquisition to `creative adaptation to `innovalue in what are called learning communities. It is learning that establishes the two way relationship between people and organization.

Technology technology Acquisition absorption Including Adoption Fig : chain of learning

targeted learning

creative adaptation

value added innovation (innovalue)

Value creation from lab technologies-Triple helix model

University based incubation , assisting the growth of spin-off firms through a dedicated facility providing subsidized space, consultation and other help to encourage entrepreneurship is a world wide phenomenon. This originated in the USA at Rensselaer Polytechnic Institute (RPI) two decades ago as an explicit organizational format and since had spread all over the globe. Incubator development varies according to academic and regional conditions, the focus was on spin-offs from faculty in uSA, reverse engineering adaptation in catchingup economies and an emphasis on student organized firms in Sweden etc. Triple Helix model of university-industry-government has at its core a university as a source of new technologies and had its origins at MIT and Stanford in the early 20th century. At MIT incubation was needed to revive a declining industrial region and at Stanford the need was to develop a green field site in a region largely lacking in industry. The triple helix comprises universities and other knowledge producing institutions, industry including high tech start-ups, MNCs and government at various levels.

Fig : Triple helix model The incubator format is reinterpreted and re-invented to respond to local conditions, opportunities and problems. The flexibility of the incubator model has allowed its adaptation to the problems of low-tech as well as high tech firms, the formation of cooperatives as well as corporations, linear extension of academic research and reverse linear importation of industrial problems and business concepts into academia. The principles of incubation in a triple helix of universityindustry relationships can be expressed in the following propositions ( Henry Etzkowitz): The development of science and technology is increasingly embedded in the triadic relationship of university, industry and government. Institutions in each sector play hybridised roles that move them away from classical understanding of the sector, for instance, entrepreneurial academics, academic industrialists and business strategy in government. Incubators are organisations that internalise the triadic relationship and encourage and provide home for these hybridised roles. Networks at various levels, among incubator firms, incubators and institutional spheres have the potential to enhance the rate of innovation and inventive activity, both technological and organisational. High-tech innovation is universalised as developing countries with the ability to develop human capital in niche areas are able to translate these competencies into internationally competitive technologies and firms. Incubation exemplifies the emergence of a triple helix science, technology and innovative policy. In India, many S&T parks had been established in various engineering colleges. ICICI has set up a knowledge park in Hyderabad with (a) physical facilities (b) knowledge network with RTIs, IICT and ICCB and (c) VC fund from ICICI, for technology incubation. Successful firms will move out to nearby Biotechnology Park, where they can own land. Indian Institute of Technology, Delhi (IITD), has incubated and spun-off 7-8 technology-based firms as commercial enterprises. At another centre in IIT Mumbai, Society for Innovation and Entrepreneurship (SINE) is facilitating the conversion of research activity into entrepreneurial ventures. Success stories from the incubator include Herald Logic which develops products in enterprise information, rule-based engine; Voyager2 Infotech, which built a creative ideas portal and was bought out by Purple Yogi; Myzus Technologies, which develops products and services in the areas of wireless gateways and connectivity bridges. In Bangalore too, Indian Institute of Sciences (IISc) venture with TCSAPDAP (Advanced Product Design and Prototyping) serves over 150 top notch names in the Indian and global 9

industry. From building an innovative MiG-cum-Mirage helmet for the IAF pilots to a low-cost refrigeration product for serving motels, APDAP leverages both its strong IISc faculty backing and technical skill-sets of TCS. Dozens of similar examples can be found in the other IITs at Kharagpur and Kanpur as well. Says Ashok Jhunjhunwala, IIT Madras, the concept of having an incubation centre attached to a technological university is quite well-known and successful in the industrially-advanced countries. DISCUSSION Where do you place yr firm in the T-cube and how do you create value in that position?

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VALUE CAPTURE with IPR PROTECTION OF IDEAS AND INFORMATION Innovative Ideas are protected under Patents, confidential information is protected under Trade Secrets. PATENTS FOR INVENTION
The word `Patent' finds its origins from the documents issued by the Sovereign of England in the Middle Ages for granting a privilege. Today this word `patent' is synonymously liked with the exclusive right granted to inventors. A patent is a grant given by the state in the form of a certificate for disclosing an invention by which certain exclusive rights are conferred on the patentee which can be exercised in the country which grants the rights for a limited period. A. Patent Basics i) Legal right or credit Patent is a legal right. Many times question arises whether it is proper to credit an individual for an invention when that invention was the result of effort of several other people preceding him. In the case of monoclonal antibodies which was patented, its discovery depended on the technique of tissue culture. But those that did tissue culture first did not even have a patent for the technique. Some times people work on the same subject and come to the same conclusion at around the same time. They might not know the existence of one another. But only one succeeds in getting the patent. Alexander Graham Bell was credited with the invention of telephone. But just a few hours after Bell filed the patent application, another person Elisha Grey , filed a patent for exactly the same device. ii) Patent and commercialisation One does not need a patent to commercialise an invention if the said invention is not already protected by a patent by some one else. But in the event the inventor chooses not to patent his invention, he forfeits his legal right to stop others from working the said invention without his permission. iii) Patent and know-how Patent is what is written in the patent document and protected by law. Knowhow refers to the larger body of embodied and disembodied knowledge one requires to produce an article. Part of the know-how could be patented matter and in areas like drugs and pharmaceuticals patent license may be sufficient to exploit a patent but for most other areas in engineering additional information is required to bring an invention to market place.

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iv) How it operates The inventor is given the exclusive right to prevent others from making, using and selling the patented invention, for a fixed period of time in return for the inventor disclosing the details of the invention to the public. The duration of patent exclusivity varies from country to country, in India it is 20 years from the date of application. However under all patent systems, once this period has expired, people are free to use the invention as they wish. v) Negative right The right conferred by a patent is a right to exclude others from making, using or selling the patented invention during the term of the patent. It is important to understand that a patent does not necessarily give the patent owner the right to make, use or sell the invention himself. The owner of a patent for an improved method of producing a chemical compound would not be free to sell the compound made using the patented method if the compound is itself patented by someone else. The drug may be patented but one needs approval of authorities to market it. vi) Patents and national laws Patents are granted under national laws and therefore, the rights are also national in scope. Thus, a United States patent can be asserted only against infringing conduct in the United States. In most countries these rights are enforceable by civil rather than criminal proceedings. The country that grants the patent does not also guarantee the validity of the patent granted. For securing legal rights in different countries, separate applications have to be filed in each of the desired countries according to the law and procedure of the country concerned. If a company has got a patent for a product X in India but not applied for patent in United States, then U.S.A may not grant a patent on X to any other company in US but the company that owns the patent in India will be helpless if someone copies it in US. It will not be able to take the offender to court either in India or in US. vii) Claims Every patent application contains Claims and legal rights pertain to these claims. When manufacturer of Gillette razor claim that their product is patented, they mean that some claims related to their razor were granted patent and their legal rights are restricted to those claims only. The word patent is used in two senses. One is the document that is called patent or letters patent. The other is the content or the protection that a patent confers. Let us deal with the first sense of the word `patent'. If a person makes what he thinks is an invention, he asks the Government by filling an application with the Patent Office to recognise that he is the owner of the patent. Not all inventions are, of course, patentable. The inventions, which are patentable in a country, are specified in the patent legislation of the country concerned. Even though national laws govern patentability, most countries have adopted similar requirements. In general, to be patentable, an invention must be novel, useful and

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non-obvious. In India and all most all other countries, the first to apply gets the patent, provided he meets the requirements but in USA the first-to-invent gets the patent. Criteria for securing a patent for invention in India under the Patent Act of 1970 : I) It must be novel ii) It must involve an inventive step iii) It must be capable of industrial application iv) It must not belong to one of the categories of Excluded subject matter.
i) Novelty

The invention must be new, and no country grants valid patents for any invention that is already known. Therefore, the subject matter of the invention is not or cannot be inferred to be part of what is already known. This is commonly referred to as the `novelty' requirement. New or novel in this context means `new to the public'. Therefore something that has previously been used or known but has not been made available to the public is not a bar to patentability. "new invention" means any invention or technology which has not been anticipated by publication in any document or used in the country or elsewhere in the world before the date of filing of patent application with complete specification, i.e. the subject matter has not fallen in public domain or that it does not form part of the state of the art; (amendment 2005) The invention should not be publicly known anywhere in the world prior to the date of filing of the application for patent. What is publicly known prior to the date of filing of the application for patent is called `prior art' in the sense it forms part of the state of the art. How to establish a prior art? Patents applications, publications and other printed data are all used to establish the prior art. Any matter (whether a product or process, information about either or anything else) which has at any time been made available to the public by written or oral description, by use, or in any other way forms prior art).
ii) Non-obvious

The invention must also be non- obvious. This prevents someone from taking advantage of the patent system and obtaining protection for something that is a mere extension or trivial variation of what is known. The word `obvious' implies that something, which is plain or something which perfectly evident to a person thinking on the subject. In other words the term obviously mean that which does not go beyond the normal process of technology but merely follows plainly or logically from the prior art, i.e. something, which does not involve the exercise of any skill or ability beyond that to be expected of the person skilled in the art. The inventive step is different from novelty. Novelty exists if there is any difference between the 13

invention and prior-art. The effort made in achieving these differences is inventive step. "inventive step" means a feature of an invention that involves technical advance as compared to the existing knowledge or having economic significance or both and that makes the invention not obvious to a person skilled in the art; (amendment 2005); Test of obviousness is whether what is claimed is also obvious that could at once occur to anyone acquainted with the subject and desirous of accomplishing the end. It can be seen as consisting of two stages. First is perception of advance in the art involved in the claim and secondly evaluation of what that advance meant in terms of inventive ingenuity. The matter of obviousness is to be judged by reference to the state of art in the light of all that was previously known to the person versed in that art derived from experience of what was practically employed, as well as ,from the contents of previous writing, specification, text books and other documents. The question of whether or not an invention is obvious is most difficult to answer in patent law. The fundamental reason is that what is obvious to person may not be obvious to another. To deal with this, the courts have come up with the hypothetical `person skilled in the art. Now the test for inventiveness or `nonobviousness' is based on what that `person skilled in the art to which the invention pertains, at the time the invention was made, would consider it obvious or to be non-obvious.

iii) Industrial application

It is a prerequisite to patentability that the invention be capable of some practical application. This emphasizes the importance the patent system puts on usefulness. Although this principle remains constant, the phraseology used within the legislation of particular countries varies ex in US patentable subject matter must be `useful', whereas in the UK it must be capable of `industrial application'. The patentable invention must be `susceptible' or `capable' of industrial application. iv) Inventions not patentable

In some countries, laws excludes certain specific kinds of inventions from being patented, for example, inventions relating to nuclear transformation. In India, sections 3 and 4 of the patents act (1970) as amended in 2005, specify the categories of inventions which are not patentable. They are :
(a) Frivolous or claims anything obvious contrary to well established natural laws , (example -herbal petrol as claimed by Ramar Pillai), 14

(b) An invention the primary or intended use or commercial exploitation of which could be contrary to law or morality or which causes serious prejudice to human, animal or plant life or health or to the environment (sleeping pills for children, drugs etc), (c) Discovery/ abstract theory or discovery of any living thing or non-living substance occurring in nature, (d) the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance or the mere discovery of any new property or new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant. (Explanation.For the purposes of this clause, salts, esters, ethers, polymorphs, metabolites, pure form, particle size, isomers, mixtures of isomers, complexes, combinations and other derivatives of known substance shall be considered to be the same substance, unless they differ significantly in properties with regard to efficacy;" -amendment 2005). (e) Chemical mixtures/ mixtures, (f) Re-arrangement/ duplication of known devices each functioning independently on another in a known way.( PC -operated lathe, gear box +motor- geared motor), (g) A method of agriculture or horticulture( crop rotation, plucking coconuts), (h) Medical/ surgical diagnostic, therapeutic treatment of human being/ animals to make them free of disease/ increase their economic value/ that of their products ( surgery, spraying of pesticides etc), (i) Plants and animals other than micro-organisms in whole or any part thereof including seeds, varieties and species and essentially biological processes for production or propagation of plants and animals, (j) A mathematical or business method or a computer program or algorithms, (k) A literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever including cinematographic works and television productions, (l) A mere scheme or rule or method of performing mental act or method of playing game, (m) A presentation of information, (n) Topography of integrated circuits, (o) No patents allowed in all the areas relating to atomic energy, (p) Also excluded are schemes, rules or methods of performing mental acts , playing games or doing business; likewise presentation of information.

PROTECTION OF FORM AND APPERANCE

This includes Copyright, Industrial Designs and IC layout.

COPYRIGHT
Registrar of Copyright is the competent authority, he maintains a registar of copyrights in which will be entered, at the option of owners, the names and addresses of copyright owners. Though rights accrue the moment a 15

copyrightable work has been created, proceedings of infringement of copyright shall not be instituted unless copyright is registered in the Copyright office. An appeal can be made to the Copyright board against the orders of the Registrar of Copyright and further appeal will lie at High Court against decision of Copyright Board. The normal term of the copyright is to be life of the author and a period of 25 years after his death, shorter terms for cinematograph films, photographs etc. For the purpose of the act, copyright means the exclusive rights to do or authorize the doing of any of the following acts: a) in the case of literacy, dramatic or musical works ; (i) to reproduce the work in any material form including the storing of any medium by electronic means, (ii) to issue copies of the work to the public not being copies already in circulation, (iii) to perform the work in public or communicate it to the public, (iv) to make any cinematograph films or sound recordings in respect of its work, (v) to make any translation of the work, (vi) to make any adaptation of the work, to do, in relation to a translation or an adaptation of the work , any of the acts specified to the work in sub-clauses (i) to (iv) . (b) in the case of a computer programme; (i) to do any of the acts specified in clause (a), (ii) to sell or give on hire or offer for sale or hire any copy of the computer programme, regardless of whether such copy has been sold or given on hire on earlier occasions. (c) in the case of an artistic work; (i) to reproduce the work in any material form including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work, (ii) to communicate the work to the public, (iii) to issue copies of the work to the public not being copies already in circulation, (iv) to include the work in any cinematograph film, (v) to make any adaptations of the work, (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (iv). (d) in the case of a cinematograph film: (i) to make a copy of the film including a photograph of any image forming part thereof, (ii) to sell or give on hire or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions. (iii) To communicate the film to the public. (e) in the case of sound recording: (i) to make any other sound recording embodying it,

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(ii) (iii)

to sell or give on hire or offer for sale , any copy of the sound recording, regardless of whether such copy has been sold or given on hire on earlier occasions, to communicate the sound recording to the public.

Unlike Patents, infringement of Copyright is punishable with imprisonment for a term, which shall not be less than 6 months, but which may exceed to 3 years and with fine, which shall not be less than Rs 50,000/- but , which may extend upto Rs 2 lakhs. See Box for Copyright dispute. Computer programs Computer programs are generally understood as a set of instructions capable , when incorporated in a machine readable medium of causing a machine having information processing capabilities to indicate, perform or achieve a particular function , task or result. Indian Copyright act defines computer programme as a set of instructions expressed in words, codes, scheme or in any other form, including a machine readable medium capable of causing a computer to perform a particular task or achieve a particular result. Computer is defined to include any electronic or similar device having information processing capabilities. Author of a computer generated work is the person who causes the work to be created. Any person who knowingly uses on a computer of an infringed copy of a computer programme shall be punishable with imprisonment for a term, which shall not be less than 7 days, but which may extend upto 3 years and with fine which shall not be less than Rs 50,000/- but which may extend to Rs 2 lakhs. Databases Database means a collection of independent works, data or other materials arranged in a systematic or methodical way and capable of being individually accessed by electronic or other means. TRIPs agreemnt provides that compilation of data or other material, whether in machine readable or other form, which by reason of the selection or arrangement of their contents constitute intellectual creation shall be protected as such. Indian Copyright act includes tables, compilations including computer databases along with computer programmes in the `literacy work.

INDUSTRIAL DESIGN
In a general sense Industrial designs refers to the creative activity of achieving a formal or ornamental appearances of mass produced items which satisfies both the need for the item to appeal visually to potential consumers and the need of the item to perform efficiently its intended function. However in a legal sense, the right given in many countries , protects the original ornamental and nonfunctional features . The first law on Industrial Design was the `Designing and 17

Printing of Linens, Cotton , calicoes and Muslims Act of 1787 in U.K. Over the years many acts were enacted , amending the previous acts or even repealing the old ones. Thus in 1907, the Patents and Designs Act came into force in England. It disposed of most of the existing copyright legislations accumulated over nearly 2 centuries. This act became the 1911 Indian Designs and Patent Act. The Indian Design Act has classified articles into 14categories. This classification is based on the material or predominate material of which the article is made. For example, class 1 articles in which metals predominate ; class 2 covers books and book bindings; class 3 rubber, wood, bone, ivory, celluloid, bakelite etc; class 4 covers glass, earthenware, porcelain; class 5 articles made of paper, cardboard; class 6 covers articles in which leather predominates; class 7 paper hangings,; class 8 deals with carpets, rugs, floor coverings; class 9 deals with lacs; class 11 wearing apparel; classes 13 deal with printed or woven designs on textile goods. A design can be protected in India if the features of shape, configuration , pattern or ornament applied to an article by any industrial process or means, whether manual mechanical or chemical, separate or combine, which in the finished article appeal novel and original to and are judged by naked eye. In order to register a design, the design; i) must be new or original, meaning that the design must not have been known previously in India on the date of filing the application for registration, ii) must relate to the features, shape , configuration, pattern, ornamentation of an article, iii) must be applied to any article by any industrial process, iv) the features in the finished article should appeal to the naked eye, v) as applied the design should be integral part of the article itself. Designs , which cannot be registered are : (i) any make or principle of construction, operation or function or anything which is in substance is merely a mechanical device, (ii) a trademark, brand name or a logo forming part of an article, (iii) a conception of an article , which is so general as to allow several different specific appearances being made within it, (iv) a colour or a combination of colours to constitute the pattern or configuration of an article, (v) stamps, labels, cards and the like things. A brief statement of novelty of the design to be protected should be endorsed on each copy of the representation of the design. The endorsement should be given below the design shown in the representation. The following are some examples of the wordings of novelty:

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a) b) c)

the novelty resides in the ornamental surface of the article, the novelty of the design resides in the shape and configuration of the article, the novelty resides in the pattern of the article

Registration of design in one class enables the proprietor of the design to prevent others from applying the design to articles within that class only. A registered design is in force for a period of 5 years from the date of registration (the date of filing of application). This period can be extended for further 2 periods of five years each by payment of the prescribed fees before the expiry of the first and second periods. The right conferred by registration of a design is called `copyright. This is confusing to the students. Copyright of an industrial design is governed by the Designs act, which is more akin to the right under the copyright act. If a design is registered under this act, it is not eligible for protection under the Copyright Act, even though it may be original artistic work. In the case of a design which is capable of registration under the Design Act but not so registered , copyright will subsist under the Copyright Act, but it will cease to exist as soon as any article to which the design has been applied has been reproduced more than 50 times by an industrial process by the owner of the Copyright. It would therefore follow that designs which are not registrable under the Designs Act get protection under the Copyright Act provided they are original artistic works.

PROTECTING IMAGE AND REPUTATION

This includes Trademark and Geographical Indications.

TRADEMARKS
Trademark is a visual symbol in the form of a word, device, a label applied to an article of manufacturing or commerce with a view to indicate to the purchasing members of the public about the origin of the manufacture of the goods affixed with the mark. The mark distinguishes such goods from the goods manufactured by others in the trade. The possession of valuable trademarks is one of the most important sources of market power. This is especially the case with corporations producing consumer goods where no basic advantage arises from the possession of specialized production technology. In many countries trademarks are being treated as property like real estate; of course its a tangible property, creating a charge over trademarks just like other properties. The registration of a trademark is not essential, a trade acquires the right in a distinguishable trademark merely by using it upon or in conjunction with his goods irrespective of the extent of use.

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For the purpose of registration of trademarks, goods were classified into 34 classes as set out in the Fourth Schedule to the Trade Mark Rules, 1959 and a trade could be registered in respect of any or all of the goods comprised in a prescribed class of goods. If registration of a mark was required for goods falling under two or more classes, separate applications were to be made for each class. Now the Registrar has to classify goods and services under section 7(1) in accordance with the international classification of goods and services. An alphabetical index has to be issued under section 8 of the 1999 Act. Section 157 authorizes the Central Government to determine manner of publication of alphabetical index of classification of goods and services. Shape, Packaging and Colour Combination of Goods The new Act defines three additional things: (a) shape of goods (b) packaging of the goods, and (c) combination of colours. The mark consisting of shape, or packaging or a combination of colours that is put on goods or services in the course of trade or rendering services shall be considered as a trademark, which may be registered and would have rights accordingly as per provisions of law. Well-known Trademark Before introducing the new Act, the term well-known trademark has not used; it is used for the first time in Indian trademark law and has been defined in the 1999 Act. The term well-known mark is defined in WTO-TRIPs that seeks better protection and treatment of trademarks. In consideration of the new requirement of article 16 of TRIPs, the provisions of well-known mark are included in this new Act of 1999. It is usual that ordinary trademarks can acquire the character of wellknown trademarks. In the words of the law, such a trademark is to be considered as a well-known trademark, which is seen by the consumer on some goods or services, which relates to the mark already used on some other goods or services. The most essential features in relation to well-known trademarks are (i) knowledge or recognition of the trademark in the relevant parts of public, (ii) promotion of trademark, (iii) duration, extent and geographical area including registration and use. This criteria follows even the trademarks of foreign companies, which means the aspect of well-known mark is not just limited to the area of Indian trademarks, but there are world-wide effects to the globalization and transborder reputation of the mark. The trademark may be a well-known trademark even when the trademark has not been used or registered in India and if the application has not been filed in India or the trademark is not well-known in India to public at large. If the mark is known to the public outside India and not known in India, it may also be considered as well-known trademark in India and be treated as per provisions laid down in the 1999 Act. DISCUSSION What intellectual property your firm generates?

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VALUE DELIVERY
VALUE DELIVERY THROUGH PRODUCT INNOVATIONS When markets tip Markets tip when network externalities create a lock-in so that once established a standard can be very difficult to replace. Lock-in may occur when the technology is still in fluid stage and in markets where standards are important it may be difficult to survive as a small player. This happens because it is expensive to switch between standards and network effects are important and expensive to create. On the corollary networked products fail to take-off when there are no standards, the struggle in introducing CAS (Conditional Access System) for cable TV, digital set top box for IPTV are examples.

Fig: market tipping

As the firms share of installed base increases, the consumers preference for that product increases at such a pace that market tips in his favour much sooner. In many cases it is not even the installed base; it is the expected installed base.

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Markets tip when one standard becomes the preferred choice of nearly every consumer, ex: VHS, Windows O/S. Understanding user needs with Quality Function Deployment (QFD) QFD, originally developed in Japan, is a conceptual organisational framework for enhancing communication and coordination between engineering, marketing and manufacturing personnel. It is based on the premise that Innovations do not fail in the end - they take the road to disaster in the beginning due to incomplete understanding of users requirement. The organising framework for QFD is the concept known as the house of quality (HOQ), a matrix that maps customer requirements against product attributes. The starting point is to identify customer requirements. The completeness of customer requirements must be checked. Section A of figure below contains a list of the customer wants and needs. Sometimes it is also called the `voice of the customer or `WHATs. Section B is the planning matrix which usually includes the following information; importance to customer, competitive benchmarking, sales point and final priorities. Section C lists the technical characteristics of a product or `HOWs. Section D is the relationship matrix which indicates how much each `how affects each `what. Section E, the roof of HOQ contains the technical correlations that capture the trade-off between pairs of `hows. Section F, considered as the last room contains the technical matrix with information on technical priorities. Sometimes it also includes technical benchmarks, technical difficulties, estimated cost, targets and other related information (fig 6.6).

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Fig : QFD

--------------------------------------------------------------------------------------------------The starting point is to identify customer requirements. In the figure shown, market research has identified five attributes that customers want from a car door- that it be easy to open and close, that it stays open when the car is parked on a hill, that it does not leak in the rain, that it isolates the occupant from road noise and that it affords some protection in side-on crashes. The next step is to weigh the requirements in terms of their relative importance from a customers perspective. Once this has been done, the team needs to identify the engineering attributes that drive the performance of the product-in this case the car door. In the figure shown, four attributes are highlighted; the weight of the door, the stiffness of the door hinge (a stiff hinge helps the door stay open when parked on a hill), the tightness of the door seal and the tightness of the window seal. After identifying engineering attributes, the team fills in the body of the central matrix. Each cell in the matrix indicates the relationship between an engineering attribute and a customer requirement. This matrix should indicate both the direction and strength of the relationship. A fourth piece of information in the house of quality is contained in the roof of the house. A matrix here indicates the interaction between design parameters. Thus, the negative sign between door weight and hinge stiffness indicates that a heavy door reduces the stiffness of the hinge. Negative signs indicate design constraints, the most common problem in product design. In designing engines, the parameters to be targeted for reduction are Fuel consumption, engine weight, Exhaust emission etc, and those that should be increased are Safety, Durability, Power Etc. But each parameter is related to one another and moving one parameter will affect others, some positively and some negatively. Low fuel consumption can be achieved by specifying smaller engine, it has effect on size and cost but likely to adversely affect power, drivability. An Aluminum cylinder can be specified for less weight and to help with fuel economy, but it would have an adverse affect on cost and radiated noise. Some innovations are aimed at changing the adversarial relationshipsintroduction of inlet manifold made from plastic provided a lighter weight part, at a 23

reduced cost and with improved safety since this part would now deform during a crash. The final piece of information in the house of quality is a summary of customer perceptions of the companys existing product compared with that of its competitors-in this case A and B. How to spot a winner The framework of the strategic assessment as displayed in the figure below, shows that the central determinants of innovation success-technology potency and business advantage- are based on 4 major underlying considerations : Inventive merit Embodiment merit Operational merit Market merit.

Inventive merit

A fundamental new combination of scientific principles lies at the heart of any truly radical innovation. It is the core hypothesis of the inventive concept. How do we find if an inventive concept really has merit? A truly significant inventive concept will use its new combination of scientific principles to relieve or avoid major constraints inherent in the previous art. In the case of Transistor, elimination of heated cathode of a vacuum tube allowed portable radio size and weight to be reduced while offering longer battery life and greater reliability. Sumeet grinder eliminated the need for physical work and its heavy motor took the load of wet grinding for Idli, Vada without burning out. Mobile phones free you from fixed environs and have the affect of liberating one.
Embodiment merit

The assessed value of the physical form given to an inventive concept is its embodiment merit. Even the most creative invention requires substantial additional engineering to be complete. Approached with imagination, the embodiment of an invention can offer as much scope for improvement as the invention itself. Japanese manufacturers reinforced the size and weight advantage that the transistor offered by miniaturising the ferrite antennae, loud speakers and tuning capacitors as well. Summet Grinder is more compact than traditional wet grinders, both manual and motor driven used in South India. iPod, the runaway success from Apple is an example of embodiment merit. Sleek, slim, light weight mobile phones also have embodiment merit, which the bulky satellite phones do not possess.
Operational merit

The effect of an innovation on a companys existing business practices is a measure of its operational merit. The more potent the technology in question, the more likely it is that existing business operations will be superseded. In the days

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of tube radios, a franchised dealer network providing maintenance service was a critical element of radio marketing. Not only have transistor portables proved to be much more reliable, but they also are small enough to be mailed to central repair depots. Japanese manufacturers could use much wider non-franchised distribution channels, addressing a whole new market. Grinding stones, being heavy and low margin products were sold in limited outlet whereas Sumeet was sold in all large crockery stores. One of the remarkable innovation that has emerged from India is the single use shampoo packet, opening several new channels of distribution left unexplored by traditional FMCG marketers. Mobile phones unlike traditional land phones are sold even by pan shops. -------------------------------------------------------------------------------------------------a)
Basic constraints Basic constraints Lifted added Engineering enhancements Enabled Engineering enhancements diluted

Inventive merit Technology Potency b) Business practices Simplified Business practices complicated

Embodiment merit

Final demand expanded market merit

final demand constrained

Operational merit Business advantage C) Technology potency

Business advantage

Innovation success Fig: spotting winner ----------------------------------------------------------------------------------------------------------------

Market merit When combined with the operational merit, market merit determines business advantage. Primary factor is increase in the final demand. The light weight and small size of Japanese pocket radio provided play-as-you-go rather than carryand-set-down portability. A new market of youth mobile market opened. Grinding stones had a limited market, purchase was made typically once at the time of marriage and becomes a part of brides moveable property forever. Sumeet

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increased the customer base by making it a consumer durable product for use by young house wife living independent of mother or mother-in-law. Sale of the fastest growing consumer product mobile hand set- galloped based on market merit of pre-paid cards. Philips introduced Radios that need no power. Five minute of winding (like watches) will generate enough power to last for 3 hours of radio time. This was invented in UK for Africa and was a major success. There is inventive merit. Will it be a success in India? Battery operated car was recently introduced in India. It has innovative and embodiment merit. Only battery needs charging almost every night a disadvantage in terms of operation merit. Will it succeed? Sintex water tanks was a major success, it had inventive merit of cleanliness, visual embodiment merit, facilitated wider distribution due to light weight and increased the final demand with a range of storage capacities. Value delivery with organizational innovations DOUBLE-LOOP LEARNING Learning includes two types of learning: 1. Technical learning, to acquire and accumulate technical competence. 2. Organisational learning, to create or acquire routines for managing the process of technological change. The relative importance of Technical learning and Organizational learning can be put in a simplified way, as shown in table .
Table: Technical learning Vs Organisational learning Technical learning Assembled products Manufacturing firms Non-assembled Products manufacturing Firms Service Organizations XXX XX X organizational learning X XX XXX

X - less important XX -equally important XXX -more important -----------------------------------------------------------------------------------------------------------

Although learning is important, it is not automatic. When organisations fail to learn on either of these dimensions, they do not develop technological competence. More important, they often repeat the same mistakes in managing the process of change. Technical Learning is seen as following a pattern of reflecting on experience, building up conceptual models and then

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testing their validity by experiment. If we want to learn well from new technology then we will need: Structured and challenging reflection on the process, what happened, what worked well, what went wrong etc. Conceptualising, capturing and codifying the lessons learned into frameworks and eventually procedures to build on lessons learned. Experimentation, the willingness to try to manage things differently next time, to see if the lessons learned are valid. Honest capture of experience (even if has been a costly failure) so we have raw material to reflect on. What is learned and developed with each learning cycle is not only technological knowledge added to the Firm Specific Knowledge base of the firm but also knowledge about how to manage the process itself. To take an analogy, human beings not only acquire new content of knowledge as they grow, but they also learn to learn; some develop more effective learning strategies than others, whilst for others it is case of `some people never learn. There is also the issue of `unlearning of eliminating those practices that do not contribute to success. ----------------------------------------------------------------------------------------------------------Technical learning Organisational learning

Technology fort

Fig : Double loop learning

In many Japanese plants working on total productive maintenance programmes, operators are encouraged to document the operating sequence for their machinery. This is usually a step-by-step guide often illustrated with photographs and containing information about know-why as well as know-how. This information is usually contained on a single sheet of paper and displayed next to the machine. It is constantly being revised as a result of continuous activities but it represents the formalisation of all the little tricks and ideas which the operator have come up with to make that particular step in the process more effective. Learning curves demonstrate the reduction in unit cost after repetitive production. There is also learning that manifests in Quality, Reliability, Speed of innovation, design simplification through Value engineering etc. Priorities of most Indian firms are on product innovation, quality and reliability improvements and cost reduction. In view of significant gaps in technology, it would appear that Indian firms should take up OrganisationaL Learning only after they achieve global level technical competencies, but that would not be possible as technical competences and organizational processes are interlaced. The cases of Reliance Refinery 27

and Tata Steel given at the end of the chapter illustrate their drive towards excellence in these areas . The picture could be different for MNC subsidiaries like Dell - the strength of Dell is its Business methods. As we have seen in IPR, Business methods are patented in large numbers in USA. For service organizations like ICICI, HDFC, Nerula organizational routines are certainly more important than embodied technology utilized by them. Same is the case with large consumer product companies like Hindustan Lever or co-operatives like Amul. As we will see latter Organizational Learning is all pervasive and effects positively technical learning. There are two types of complexity, `dynamic complexity and `detail complexity. Mixing many ingredients in a stew involves detail complexity as does following a complex set of instructions to assemble a machine or taking stock of inventory in a discount retail store. The second type is dynamic complexity, situations where `cause and `effect are subtle and where the effects over time of interventions are not obvious. When an action has one set of consequence locally and a very different set of consequences in another part of the system, there is dynamic complexity. When the same action has dramatically different effects in the short run and in the long, there is dynamic complexity. When obvious interventions produce non-obvious consequences, there is dynamic complexity. After mastering detail complexity, which involves technical learning, the focus has moved to understanding dynamic complexity that involves organisational learning for leveraging competitive advantage. Globalisation shoved in liberal doses of dynamic complexity to the Indian platter. DISCUSSION Construct your technology fort

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