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Monday, September 04, 2006

Sustaining Competitive Advantage

Sustaining Competitive Advantage

My spouse’s family has ‘horse fever’ and has owned race horses for most of his life so it should be no surprise that I eventually ended up at a race track. My complete knowledge of horses consists of the ability to determine their color–as in “oh, you mean that brown one....” or other such astute remarks. So, you can imagine my husband’s chagrin when during my first visit I took a look at the horses and told him where I wanted to place my bet...and won! Chalk it up to beginners luck. The next race-also a winner -was obviously a fluke. Laughter ensued by the third race as I picked out a horse given odds 8:1 ....which placed first. My glee was met with stone dead silence. Ha! Perhaps I wasn’t crazy when I said I could tell by the way the horse moved. It would seem I possess some type of intuitive ‘feel’ for the mechanics and temperment of a horse. So, what the hell does this have to do with our reading you may be wondering....

Having survived the dot-com mania only to go on to the niche biotechnology arena I’ve encountered a lot of creative, crazed, crooked [ahem!], and even a few competitive maneuvers in the past several years. It’s been an amazing eye-opener and for better or worse, I’ve been fortunate to move through the ranks and learn a tremendous amount in the process. Shockingly, I’ve come to the conclusion that a great many people select their investments and business strategy much the same way I select a horse–it just ‘looks right’ or ‘sounds right’. Even more stunning is how frequently things are done according to ‘tradition’, prior learning, networking [not necessarily a bad thing in and of itself] or just about anything other than research or reason. None of which are enough to sustain a competitive advantage in an aggressive, competitive, rapidly changing, nearly delusional, and at times unethical environment.

Copycats, Knock-off’s and Reverse Engineering
One of the first thoughts that enter my mind while reading this is how commonplace reverse engineering has become-particularly in technology related sectors. In fact, it is a strategy in and of itself–one with merit I may add. From the Segway to Ebay, a ‘knock-off’ is often available within weeks. In some industries-media for example-the ‘knockoff’ may actually precede the actual product release. In all cases, the ability to reverse engineer or copycat the ‘real’ item, website or technology can result in several outcomes. The two most common include:
1. Reduction of research or development costs may give copycat company an advantage. In exchange for the R&D, the originating company may capture some name brand recognition or reputation but recognizes a larger overall investment up-front. The copycat company may be able to compete on price by providing a very similar product for less requiring the originating company to compete on reputation, brand awareness or similar points.
2. Lower quality is not always the result of copycat products but in most cases this probably holds true. The one exception may be software which is frequently reverse engineered and then ‘tweaked’ for customization/other. In this situation-the defining ‘quality’ measure becomes reputation, goodwill and critical mass.

The IP Craze
This is an area I truly believe is still in it’s infancy despite the fanatical growth of recent years. In large part, the protection from copycat’s and knock-off’s have given rise to the growth of the IP trend but what was once viewed as a protective covenant has become a significant aggressive factor to be reckoned with...a slight twist with tremendous ramifications. This is an area I find both fascinating and disturbing as mundane actions, procedures and methods increasingly become the private domain of for-profit entities. The near insanity of process and method patents with their infinite number of alternatives is leading the way in terms of both aggressiveness as well as ability to outmaneuver legislation or common sense. A few examples:
3. The use of an FDA approved drug used off label in a patented “process” by a company that does not own the original drug [only the patent to process which includes an off label use of the FDA approved drug] and in fact, the patent holder and originator of the process protocol would not be able to practice the protocol in this country due to variations between the practice of medicine/qualifications in the USA versus Europe.
4. Rush to patent common medical/other procedures in order to continue providing same level of care. Essentially process and method patents in medicine and even online technology process of patient education are being used to impose licensing fees upon those who practice or deliver in the prescribed the licensing fee or stop treatment. Patent holders often have no medical or other qualifications other than the IP “rights” fact, I’ve personally seen these sell for millions or dollars despite a complete lack of scientific evidence.


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