IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property

Joachim  Henkel; Carliss Y. Baldwin; Willy C.  Shih

Article | California Management Review | Summer 2013

IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property

by Joachim Henkel, Carliss Y. Baldwin and Willy C. Shih

Abstract

Firms seeking to take advantage of distributed innovation and outsourcing can bridge the tension between value creation and value capture by modifying the modular structure of their technical systems. Specifically, this article introduces the concept of "IP modularity," which seeks to protect and capture value from intellectual property. The article defines what it means for a system to be "IP-modular," illustrates the application of this concept in a number of practical situations, and presents a comprehensive framework that can be used to design and evaluate value capture strategies for modular systems.

Keywords: modularity; value appropriation; distributed innovation; open innovation; intellectual property; Innovation Strategy; Intellectual Property; Value;

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Henkel, Joachim, Carliss Y. Baldwin, and Willy C. Shih. "IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property." California Management Review 55, no. 4 (Summer 2013): 65–82.

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How should ZEISS, the German manufacturer of precision optical and optoelectronic systems manage two historic businesses that operated fairly autonomously? The Industrial Quality Solutions (IQS) business sold measurement equipment to manufacturing companies in sectors like automotive and aerospace. The Research Microscopy Solutions (RMS) business sold into scientific research laboratories and industrial materials laboratories. The two units had many similar characteristics. Both served demanding customers in complex and competitive market segments, and the use of RMS microscopy products in materials research meant an increasing amount of cross-selling into IQS customers. Yet there were many differences in the sales processes, product development processes, and approaches to product and market planning. RMS and IQS had very different ways of working, and most team members would say that the organizational cultures and the customers were very different as well.

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IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property

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