When I moved to Austin, Texas, a decade ago, I liked to needle my childhood buddy Arnie -- then a rising IBM manager – about the impressive laptops and supply-chain-management dominance displayed by IBM’s then-competitor, Dell (which is based in nearby Round Rock).
My pal never rose to the bait. “They have an R&D issue that’s going to bite them down the road,” he’d say with a dismissive shrug. His point was that efficiency and product advantage only lasts so long. To thrive over the long term, a technology company needs to invest in research and development that produces new innovations over the long term.
At the time, I thought Arnie was a little too enamored with Big Blue’s patent production; IBM has ranked as the top patent recipient in the U.S. for the past 20 years. But Arnie also shrugged off that feat. “Nah, he said, with a grin, “patents just strengthen our negotiating hand when we get sued.”
The twinkle in my pal’s eye suggested that he was half-kidding (and/or he knew that his company would soon shed its low-margin personal computer business). Last year IBM earned 6,478 patents (1,060 of which were issued to IBMers in Austin, thank you). IBM’s patent assets produce roughly $1 billion in assets and “shield against patent litigation by competitors and patent-holding firms,” according to The New York Times.
IBM’s patents represent a highly effective risk management tool – one that leverages opportunities to produce good outcomes (revenue and new products) while simultaneously preventing bad stuff (litigation) from happening.
I point this out because I haven’t been able to shake the 2012 patent rankings from my mind’s risk-management cortex. I’ve been meaning to begin 2013 by writing about several pressing issues and challenges within the domain of risk management: the challenge of auditing enterprise risk management (ERM); the staggering array of compliance challenges within the financial services sector; the war for risk management, compliance and internal audit talent and more.
But I keep coming back to IBM’s patents whenever I noodle on those other topics. Not only can patents be viewed as a quintessential risk management weapon, but IBM’s approach to patents appears to contain valuable insights for risk managers who are eager to strengthen their organization’s ERM capabilities.
In that Times article, writer Steve Lohr asks IBM VP Michael Karasick to discuss some of the reasons behind his company’s prolific patent production. Karasick’s responses, with some slight adjustments, could populate a slide deck devoted to strengthening risk management. These keys to success would include:
Cross-functional, multi-disciplined teams: Karasick points to the emergence of mixed-skills teams – computer scientists and statistical wizards work alongside biologists and geneticists, for example – as a key to devising new innovations. The same holds true for risk management breakthroughs inside companies where cross-functional risk committees are more effective (than risk managers acting alone) in identifying suitable risk appetites (and then monitoring actual risk diets) for various parts of the business.
Relational creativity: Karasick notes that his company’s patents can often be applied to various disciplines. Leading ERM and GRC practitioners would say the same thing: Risk management process breakthroughs in one part of the organization often can be applied to other areas of the company.
Customer centricity: IBM’s R&D teams include industry-specific expertise to help understand the precise nature of challenges patented technology ultimately seek to address. Karasick tells Lohr that computer scientists need “the skills to engage with customers” and the ability to apply technology to real-world problems. The same holds true for risk managers (especially those working with complex models): Their processes and algorithms have to work in practice and hold up under the busy, messy and intensely human conditions of daily work.
Perhaps the ultimate key to success is in how inventors and risk managers define their mission. IBM’s tinkerers and thinkers – including Arnie (now a rising executive) – no doubt know how their patents help the company from both an offensive and defensive perspective. Risk managers tinkering with their own processes should make sure they focus on leveraging the good stuff just as much as they focus on mitigating the bad stuff.