Moneyball - New Metrics For R&D Planning


Michael Lewis’ brilliant book Moneyball (released as film starring Brad Pitt in 2011) is an insightful analysis of how established industries can generate collective wisdom that despite being ineffective or flawed can nevertheless continue to be accepted as the status quo understanding. Accepted that is, until someone examines what is happening from a completely different perspective.

For those unfamiliar with baseball, team selection was for many decades carried out by scouts using a series of metrics which had remained largely unchanged since the middle of last century. The Oakland Athletics’ General Manager, Billy Beane, had 40% less cash to put towards player salaries. How do you remain competitive in your field when you have fewer resources? You play smarter. Beane used a different set of metrics to predict who the best players really were and in doing so ended up hiring better players than those using traditional selection methods. He also consequently paid less for these players (as conventional scouts had not predicted their value). In essence, Beane was able to determine the metrics that really counted (not what most people thought counted) and from this was able to make better decisions about where to direct his resources.

How does baseball relate to intangible assets and R&D? The fundamental goal of R&D is the creation of new intangible assets (such as content, data, code, patents, brand, domain names and confidential information) which underpin new products and services that generate additional revenue or margins. Unfortunately the current approach to R&D among many organisations is reminiscent of the flaws in collective wisdom that Beane revealed when he propelled the Oakland A’s to the playoffs.

How do most businesses decide where to focus their R&D? In many cases, R&D especially big “R”, has a strong aspect of “revelation” to it – scientific advances are arrived at serendipitously, through divine inspiration or in eureka moments. Even the lexicon betrays this – we talk of “discoveries”, “leaps” and “breakthroughs” – all suggesting that these are things that cannot be foreseen, much less planned for. In short, R&D outcomes are reactively revealed rather than proactively pursued – the R&D program gropes forward toward the future and major advancements occur in an almost random manner.

Directing R&D (and therefore intangible asset creation) need not be revelationary or reactionary. The secret is to look at the “metrics” of innovation in a different way, just as Beane did. Most readers will appreciate that patents and many other forms of intangible assets are a social contract rewarding an inventor with a time limited monopoly in return for sharing their technology with the world and bettering society. A lesser appreciated but equally important reason for publicly searchable patents is to ensure the efficient allocation of society’s collective R&D resources – so we as humans don’t continually re-invent the wheel and instead focus our resources on solving new problems.

What this means is that patents (and to a lesser extent the other publicly searchable technology rights, design patents and plant variety rights) can be an extraordinarily valuable tool to guide R&D and innovation decisions towards fundamentally innovative outcomes and ultimately commercial success. Intellectual property research provides business managers a unique lens to raise the veil of the future in two key ways:

• Firstly by seeing the spaces in the innovation / patent landscape which could provide opportunities; and
•Secondly by allowing you to see inside a competitor’s strategy, strength, focus and resources months and years before anything is visible in the market.
A careful consideration of publically available intangible asset information can reveal:
• what has been researched before
• the ‘densely populated’ areas of innovation within a technology field, as well as white spaces or opportunities
• that a competitor is investing heavily in R&D around a particular technology area or specific geography
• the pace and direction of technology development in general, as well as the direction of technology development by a specific market player
• what features, functions and benefits other researchers or competitors consider important
• how a competitor, or industry as a whole, has solved certain problems
• even a competitor’s marketing strategy

Using this different set of metrics, as Beane did (instead of the revelationary approach described earlier) a company can understand the technology and intellectual property landscape in which they find themselves and direct their R&D spend far more effectively. To an informed company, this information is priceless, facilitating:

• targeted allocation of resources into areas of the innovation landscape which are less populated
• identification of previously unknown competitors, collaborators, customers, joint venture partners etc
• avoidance of intellectual property infringement issues (freedom-to-operate)
• leap frogging earlier innovations
• creation of intangible assets as blockages to competitors
• formation of alliances in the form of licensing or entering agreements
• targeted litigation or issue of injunctions at critical moments or in critical areas
• identification of competitors focus and (eg. their latest patent acquisitions or filings)
• awareness of market shifts (what technology to direct your R&D budget into)
• an understanding of what and where your competitor may launch next (patents are often filed in the research phase and the corresponding product may still be pre-production)

It is worth noting that just as you can study the intangible asset landscape, so too can competitors. Careful and considered strategies regarding intangible assets should focus around when, where and how to protect intangible assets that require publication (such as patents). This is an essential aspect of R&D and innovation strategy.

As a simple example of how powerful research regarding intangible assets can be, consider a company developing a new product and facing two divergent technology paths (A) and (B). Both paths will take 20 engineers at $100,000 per engineer each, 2 years to complete. Without looking into intangible assets management might decide which path (A or B) to take solely on functionality, perceived market acceptance and other factors.

Putting on the intangibles’ glasses however suddenly reveals very different terrain. Path A is heavily patented out: the chance of gaining strategic high ground (building its own strong intangible asset position) is limited and there is a high probability of infringement (hitting mines or being ambushed). With path B on the other hand the terrain is wide open: the company can develop its own strong intangible assets, have no fear of intellectual property ambush or mines and can instead turn the tables and lay traps of its own, further fortifying its position.

Consider the implications of taking Path A: 40 man years of engineering time lost (perhaps $4M plus overheads), its investments in its own patents and intellectual property are largely or completely lost (perhaps $0.5M), the cost of launching a product that is quickly copied or which at worst must be removed from the market (tens of millions). Worst of all the opportunity cost of going back to the beginning and missing the market as it moves (tens of millions more). The difference between the two paths is measured in tens of millions and is stark. This is how markets are won and lost, how companies are destroyed and made.

With an ever-increasing focus on technology and innovation as key competitive advantages, it is clear that intangible assets (the output of much R&D) are now a crucial tool. It is axiomatic (though not always universally appreciated) that companies who understand content, data, code, patents, brand, domain names and confidential information, etc, who correctly assess their strengths relative to competitors’, who know which areas to avoid, which to protect and which to invest in, are manifestly better positioned than their competitors.

If we return to the Moneyball analogy, patent and other intangible asset databases are a valuable pool of information on who/what/where and when – just as the alternative metrics were for Beane. With the help of a skilled intangible asset strategist, a myriad databases globally can be mined to reveal the innovation landscape. This provides organisations with an opportunity to look at their innovation plans in a totally different and far more targeted, sophisticated and efficient way. Better intelligence about your capability relative to competitor’s capability in combination with targeted innovation in ‘white space’ areas within the technology field provides major advantages.

Careful intangible asset research can mean the difference between success and failure, victory and defeat. While there will always be a place in science for eureka moments it pays also to remember that most scientific discoveries are made, as Newton observed “by standing on the shoulders of giants”. It pays therefore to take a look around before we climb higher. In short, knowledge “is power”, even in the realm of innovation.

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