It Takes Competition PLUS Innovation

David Brooks of The New York Times recently wrote a fascinating op-ed, “The Creative Monopoly,” in which he contends that U.S. companies are more invested in competition than innovation…to their strategic disadvantage 

“Instead of being slightly better than everybody else in a crowded and established field, it’s often more valuable to create a new market and totally dominate it,” he writes. “The profit margins are much bigger, and the value to society is often bigger, too.”

It’s true:  a competitive mindset can sometimes mean missed opportunities.  There are lots of examples of big, successful companies walking away from a breakthrough new idea.  Think of the telephone.  When William Orton, president of Western Union, the world’s first communications empire, was offered the rights to the telephone in 1877, he declined, describing Alexander Graham Bell’s invention as an “interesting novelty [with] no commercial possibilities.” 

If Orton had been a little more far-sighted, we might now be signing up for cell-phone service with Western Union Telephone & Telegraph (WUT&T), instead of American Telephone & Telegraph (AT&T)!

In the best of all possible worlds, companies should be combining competition with innovation.  One company does it well:  Apple.

Have you ever heard of Audio Highway?  That’s the company that, in 1996, created the first portable MP3 player (called Listen Up) and the system for uploading content to a PC and downloading it into the player.  But in 2001, Apple differentiated what could have been a “me too” product by redefining the consumer’s experience of using a portable audio device, when it launched the iPod.

Today, Apple is coming out with new products and innovations just about every 15 minutes.  Through its brilliant design, branding and marketing initiatives, Apple has created a whole family of products that now includes five or six different varieties of iPods — plus iPhone, iTouch and iPad.  

It’s the prime example of a company that manages to be both competitive and innovative…and, as a result, outperforms itself in almost every measure. 

An Opportunity to Lead on Intangibles

Today’s guest blogger is Bruce Berman, a principal in Brody Berman Associates, and is responsible for four books on IP and business, including From Ideas to Assets. His weekly posts can be found at IPCloseUp.


The recent sale by AOL of 800 patents to Microsoft for $1.1 billion, and patent purchases by Facebook and Google and Apple, are graphic reminders that intellectual property rights, otherwise hidden assets, are keys to unlocking value.

Intangible assets like patents that are not reflected on balance sheets today deserve the same oversight as a business’ other financial assets. They rarely get it.

PwC and other sources attribute 80% or more of the market value of S&P 500 companies to intangible assets, primarily intellectual property rights. Despite this, many companies do not discuss their patents publicly because they fear they are too intricate and that no one is listening. That is no longer the case.

CXOs and board of directors should not be intimidated by the learning curve or financial reporting challenge. Explaining their innovation rights should not be seen as a burden but as an opportunity to provide stakeholders transparency and turn hidden value into market capitalization.

Patents are the product of costly R&D. They can permit innovative companies more market share and higher profit margins, licensing revenues and freedom from disputes.

Businesses that fail to explain the role their IP rights play in financial performance are short-changing themselves and possibly shareholders. The clever ones will disclose more before investors and regulators require them to.

Setting Records... and Breaking Them

Big news on CNNMoney.

Recently, Apple nudged out oil giant Exxon Mobil to become the most valuable publicly-traded company in the world.

“The company's stock was up 6.3% to $447.02 a share, one day after Apple reported the best quarterly results in history for a tech company. That spike pushed the company's market value to $419 billion,” Ben Rooney writes.

According to The New York Times, last year Apple earned over $400,000 in profit per employee, more than Goldman Sachs, Exxon Mobil or Google.

Here’s my personal theory why …

Apple first redefined the consumer’s experience of using a portable audio device in 2001, when it launched the iPod First Generation in 2001. Now it seems like Apple is coming out with new products — and impressive innovations on existing products — just about every “15 minutes.” Steve Jobs’ brilliant engineering, design, branding and marketing teams have redefined the market and given rise to a whole family of products that now includes five or six different varieties of iPods — plus iPhone, iTouch and iPad.

Apple outperforms its competition by outperforming its own past performance. Lesson to be learned.

SUCCESSION PLANNING: REMEMBER THE CEO JUST RENTS THE OFFICE

In just the first few weeks of 2009, a number of corporate CEOs were sent packing. Seagate, Tyson Foods, and Borders Group were just some of the companies that announced changes at the top. Also, Apple chief Steve Jobs is taking a leave of absence for health reasons after months of speculation. More CEO changes are rumored to be on the way and may include some of the world’s leading companies.

The company’s reputation can be seriously tarnished if the succession issue is left unaddressed. For instance, commenting in his blog on the situation at Apple, New York Times business columnist Joe Nocera wrote: "The time has come for Apple's board to take control of this subject from Mr. Jobs and do the right thing by the company's investors.”

One of the main responsibilities for a CEO and the company’s board of directors is the development of a succession plan to insure the continuity of the company. Despite the critical importance of CEO succession, many companies are unprepared for the “changing of the guard” – either planned or unexpected. As a result, what should be an orderly, well-planned transition often turns into a crisis situation alarming virtually all of the company’s constituents – employees, suppliers, customers and, of course, investors.

One of our clients faced a succession issue, more specifically how to communicate the change at the top. The outgoing CEO was popular and successful. The board had identified his successor, a dark horse candidate virtually unknown to the outside world. Their initial plan was to announce the early retirement of the CEO without mention of his successor; a follow-up release would have identified his successor. We advised them that the executive changes should be announced in one comprehensive release to avoid unnecessary speculation and investor panic. They listened and we helped build an identity for the incoming CEO by arranging media interviews as well as through direct contact with the company’s investors.

In its report entitled, “A Practical Guide to CEO Succession Planning,” Russell Reynolds Associates, a leading executive search firm, outlines a number of steps designed to insure a smooth transition at the top. These include creating a written succession plan by the board, which should be reviewed twice a year. This plan establishes the basis for selecting a new leader through an examination of the company’s strategic direction while factoring in various business challenges. With the plan in place, the board can review internal as well as external candidates. The report also outlines the steps to insure a successful transition such as knowledge sharing between the outgoing and incoming CEO as well as a program to communicate with the company’s various stakeholders.

The current economic downturn will undoubtedly lead to more CEO departures. As the CEO is often “the face of the company,” its standing and reputation will depend on how the issue is handled.


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