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Dow Chemical: The Leap Into ICM

The first time I was exposed to the enthusiasm surrounding ICM at Dow Chemical (Dow) was in Atlanta, Georgia, in early 2001.15 Listening to David Near, the Director of Business Excellence for Dow's polyurethane business talking about ICM at Dow with such belief was an invigorat­ing experience amidst corporate skepticism facing the concept. With his calm disposition, yet deep belief in the topic, Near drives the complex IC concept home with ease and confidence. Two main features impressed me in Near's presentation: the methodological approach that Dow developed to make business sense of a complex concept and the evolution of the IC concept itself inside Dow.

Analyzed under the CICM lens, Dow's journey started early on with IM, progressed to IP (asset) management in the late 1980s and early 1990s, and then to KM in the mid-1990s, alto­gether forming a synchronized comprehensive model for ICM. Though the various stages were implemented at different times and under varying circumstances at Dow, Dow's senior executives managed and integrated the implementation of the various programs as complementary pieces in a mosaic to form at the end their ICM system. With all the internal and external currents of change that Dow was subj ect to, Near and other leaders at Dow managed to keep a strategic focus to enable both the evolution and the application of the IC concept to business reality. With its focus on patents as one of its most valuable intellectual assets, Dow's journey started with the Intellectual Asset Management (IAM) initiative.

Petrash's IAM - Paving the Way

Dow's IAM is one of the most advanced models for managing patents and technology and one that gained widespread popularity. It took IPM out from the legal department to over 100 teams spread throughout the organization. Most importantly, it aligned managing intellectual assets, starting with patents, with the strategic management of each of Dow's businesses. Dow's IAM model started with an assignment to one of the R&D managers at the time, Gordon Petrash. With Petrash's demonstrated success in commercializing patents in his own business unit, top man­agement at Dow wanted him to transform his knowledge into a working system that the whole organization could implement. Petrash started with a patent audit of the 29,000 patents that Dow owned at the time. Applying valuation methods, Petrash and the auditing team gathered evidence as to the value of the audited patents. Of course, some patents had demonstrated value reflected in sales of patent-associated products, and thus the growth of the business unit. The largest num­ber of patents, however, did not fall under this category and had to be properly classified.

In addition to the auditing phase, the classification phase went a step further by determining the use of the patent. Each business was required to classify the patents it had into one of three major categories: "use, will use, or will not use."16 This was followed by the strategy and invest­ment phases wherein the business uses a number of valuation and competitive assessment tools to assess the commercial value of the patent(s) and devise a plan for their exploitation. For valu­ation purposes, Dow developed with A.D. Little the Tech Factor method in which the value of the patent is estimated as a percentage of the total net present value of the business unit that owns it.17 Patent citation trees were also used to evaluate the significance of the patent in the market and to gain insight into the competitive and technological landscape.

Patents falling in the second category are then evaluated as to their values to other parties out­side Dow. The auditing team took a broad approach, looking at universities and government labs, as well as competitors and noncompetitors in local and global markets. The surprising result was that only 30 percent of Dow's patents at the time were of strategic value to Dow, while the others were expendable either as donations to collect tax deductions or to be sold or abandoned. The result was an instant savings of $50 million over a period of 10 years, drawing support and com­mendation to the effort. But that is only the tip of the iceberg. This big savings allowed the IAM program of Dow to receive resources beyond the initial $1 million and the handful of personnel that Petrash started with. Dow's IAM model was launched and later integrated as a business process permeating the management of each business at Dow.

The $50 million that Gordon Petrash proved the company can save through effective IAM not only paved the way for a more robust IAM program (what is called intellectual property management under the CICM), but it also created the right mindset and culture required to embrace the IC concept - an opportunity that David Near grasped to take Dow into the world of ICM, and in so doing shape that world as well.

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