During the Internet and technology boom of the ’90s, not every company spent wildly on turnkey enterprise software packages. Many built their own, and having done so, they realized that they had created something that could be sold to other companies. But process licensing came with a few competitive risks, and the practice never reached the potential imagined by the people we used to call innovators.
Now, apparently, the process licensing game is enjoying a growth spurt. According to an article in The New York Times, sputtering profits from traditional sources have forced many companies to search for new revenue streams, and process licensing is just too promising to overlook. The Times reports that Ford appointed a director of technology commercialization to institutionalize its lucrative process rental business; that Caterpillar is so eager to license its processes that it advertises them on its website; and that Procter & Gamble has hired BearingPoint to help sell a quality control process.
Observers of the recent rush to the license market point out that this is hardly going to be a free lunch. Along with gain will come some pain. One of the first victims, the Times points out, is likely to be the widespread and extremely valuable practice of benchmarking, by which many companies share information (yes, for free) about their best practices. Other business wizards worry that we will create a universe in which every slight improvement to a process will suggest some increased value, and that often-illusory gain will be determined by time-consuming and expensive litigation.
The lawyers will win (we knew they would; they always do). What about the companies that license their processes? Is their gain worth the potential for pain?
We asked our readers if they would license their companies’ processes. Here are some of the responses.
Licensing processes isn’t worth the trouble. I regularly share ideas with my peers. These informal exchanges allow all of us to form our own processes, suiting our unique requirements.
When it comes to selling processes, there are too many risks and long-term support implications to make the idea attractive. It would be akin to entering into the packaged software business?most people who have tried have lost their shirts.
It’s better to keep things informal. That way people are at liberty to draw their own conclusions without generating any liability.
Process comes in at least four forms: 1. Logic diagram or model; 2. “Project” plan; 3. Computer executable; 4. The reality of emergent behavior. I would grant a “license to use” for the first three forms. The fourth cannot be reproduced or packaged, and thus cannot be licensed.
With a basic license, you cannot sue me for applying my process, and I have no responsibility for your outcomes.
The concerns expressed in this column about support, liability and so on are easily handled by license terms and conditions. (If you want to take their money without providing them any recourse, you are safest to use the license agreement wording on any Microsoft product. Of course, you have to get permission first.)
Most respondents seem to presume that money is the motivation for licensing. I would license in order to increase the coherency of the value webs of which I am a part. Metcalfe’s Law applies. The guy with the best process is like the guy with the first fax machine?not really useful until a fully interoperable process exists at corresponding nodes. How do you make that happen? License your process. This will bring on the era of process syndication.
Business process may be like communication protocols?only higher up the food chain than the exchange of messages. A world of “process syndication,” to quote the felicitous phrase of another contributor, may have great benefits for the strategic flexibility of modern companies. It may be that process syndication reduces the barriers to entry into new business areas, lowers the opportunity cost of existing strategic choices, and ushers in a new era of “componentized business process architecture,” or some such thing. After all, most businesses’ core competency is usually only one or two areas out of the total set of business functionalities. Process syndication would not only improve the quality and reduce the cost of outsourcing (as well as insourcing) certain functions, but it gives businesses more strategic flexibility when answering the question, What business are we in?
At the same time, I am skeptical that businesses can be wrapped up in this way. People skills matter. Without good skilled workers and good managers, any business process will end badly. A world of licensed processes might change the strategic landscape of a lot of companies, since, in effect, it would reduce the barrier to entry and barrier to expertise in any of the process areas.
Emberling & Associates
Remember TQM and Toyota? How many auto companies and others spent millions of dollars?often at the insistence of consultants?to find out what Toyota already knew? It was its culture that made total quality management work at Toyota. It’s not the seller beware as suggested in the article?it’s buyer beware.
If I wanted to wreck my competition, I’d take my business practices, slap a best practices label on them (or better, get one of the big consultancies to do this for me), give it away and watch them tear themselves to pieces.
Automated Systems Alliance
Licensing process is either a form of software vending or a form of franchising (or patenting). The stuff in between?knowledge, flowcharts, forms, rule books, guidebooks, articles, textbooks?will be impossible to control without stifling all adaptation and innovation of those parts of organizations that try to buy and implement them.
A new kind of business relationship might be possible, one where adaptation and innovation is traded back to the original owner of the process in a kind web of diminishing returns?but where public discourse remains open or is even encouraged.
Isn’t business process licensing just ERP and business process reengineering all over again? More important are people, their satisfaction, the quality and efficiency of their work, and how able they are to develop new skills. None of these processes on sale is so hard anyway (lest they be the patented kind, such as the production of ammonia or the refining of oil).
It is much better to invest in developing your organization’s skills in the area of management and organization.
Emberling & Associates