Maximising profit from innovation

Innovators require more than creativity, if they are to maximise the profits accruing to them from their activities. They need to carefully design their business strategies, so as to tighten their appropriability regime, the set of environmental factors that determine how much of the true profits of its activities the innovator may capture. The two main strategies for tightening appropriability regimes are to regulate and to invest in complementary assets. Regulation is achieved by the legal protection of intellectual property, establishing industry standards and government intervention. Investment in complementary assets is achieved by gaining market-related advantages, contractual agreements and vertical integration. The choice of strategy and its method of implementation depends on the nature of the innovation; however, neither strategy is ideal in practice and imitation is nearly always inevitable. The author discusses the methods for implementing each strategy, their applicability and their limitations. Two cases are used to illustrate the application of these methods. One case takes a new technology and a tight appropriability regime, and aims to sustain the regime. The other case takes just a `good idea´ and a loose appropriability regime, and aims to tighten the regime