Gordon Petrash: Profiles in Knowledge

Originally published January 9, 2024

This is the 99th article in the Profiles in Knowledge series featuring thought leaders in knowledge management. The late Gordon Petrash (1950–2021) was a pioneer and thought leader in the field of intellectual capital. His expertise was developing and implementing processes and cultures that enable companies to maximize the value of their intangible assets.

Gordon’s work on Intellectual Asset Management (IAM) at Dow Chemical showed how corporations can manage their intellectual capital to improve the bottom line. He was a former Partner in the IAM Financial Advisory Services practice of PricewaterhouseCoopers. He was responsible for the development and implementation of approaches, processes, and tools that maximized the value of PwC clients’ patents, trademarks, copyrights, trade secrets, and know-how. From there he moved on to become the Chief IP Strategist and VP for Delphion Inc. He was a part of the senior management team and was responsible for developing the IAM enterprise software and consulting arm of the company. He then worked for Cargill and finally opened his own consultancy, GPPIAM.

Gordon’s specialties included:

• Intellectual Asset Management
• Intellectual Capital Value Extraction
• Corporate and Business Management
• Patent Management
• Business Processes
• Change Management

Background

Education

• Indiana University Bloomington — Business, International Business Management, 1984–1985
• Kent State University — M.Arch, Architecture and Urban Planning, 1976–1978
• Case Western Reserve University — BS Arch, Architecture and Urban Studies, 1970–1972
• The Ohio State University — Architecture, 1968–1969

Experience

• GPPIAM — Value Creation and Leveraging Consultant, 2011–2021
• Cargill — Director, 2006–2011
• Hyperion — Consultant, 2011
• Delphion — VP, 2003–2005
• PwC Consulting — Partner, 1998 — J2002
• The Dow Chemical Company — Global Director, 1986–1998

Profiles

• LinkedIn

Obituary

Gordon P. Petrash, age 71 of Midland, passed away May 16, 2021 at the University of Michigan Medical Center in Ann Arbor. Petrash was born in Uniontown Pennsylvania on March 14, 1950. Gordon graduated from Case Western university with a degree in architecture. He had been employed with Dow Chemical for over 20 years; he then went to work for PricewaterhouseCoopers for 5 years and then was a consultant for Cargill Foods.

National Law Journal: Intellectual Property Trailblazers & Pioneers 2014

As an R&D director for Dow Chemical in the 1980s and 1990s, Gordon Petrash helped develop a regimented method for intellectual asset management. “We treated it like a portfolio. We were getting licenses and royalties and suing people.” Dow saw the value and tapped Petrash to build a program companywide. “At the time patents were not really valued very highly and not looked at by legal systems as very strong.”

Petrash developed a process across more than 20 business units, managing more than 20,000 patents and untold trade secrets. “We saved the company tens of millions in renewal fees and also helped it realize more than $100 million in value over 10 years.” By 1994, Dow and Petrash had gained some prominence, including a cover feature in Fortune magazine in 1994. “Over next 5 to 10 years many companies realized that IAM was a big part of corporate strategy.” In 1998, Petrash left Dow to build an IAM consulting practice at PwC Consulting, before stints in-house at IBM spin-off Delphion and Cargill. In 2011 he opened his own consulting shop, GPPIAM.

“Today’s litigious environment takes a toll, and governments are still developing their rules about patents. The rules are changing, and it’s going to be a moving target.” Petrash expects companies to get more cooperative and pool more resources. “It will happen by necessity. Any successful patent is going to get litigated. Anything that valuable is going to have some claims. But these pools could help manage that.”

Content

Definitions

• Intellectual Capital: ‘knowledge with potential for value”
• Knowledge Management: “getting the right knowledge to the right people at the right time”

Articles

Dow’s journey to a knowledge value management culture

Intellectual Capital/Knowledge Management is not the next silver bullet or fad that we should rally around. We need to ask is knowledge management important for the sake of ‘what does it have to produce?’ It is the creation of value for customers, shareholders and employees.

The Dow Chemical Company has spent the last four years developing a vision, functional systems, and tools, for the ‘value management’ of its Intellectual Assets (IA). During this effort, it has developed some competencies in the area of ‘measuring and valuing’ IA, and in developing systems that support the leveraging of IA for maximum value. In this article, Dow shares its experiences gained and reveals some of the lessons learned from this highly successful endeavor. The article also gives a glimpse of Dow’s future direction in the area of Intellectual Capital Management.

Visualizing, Measuring and Managing Knowledge with Wendi R. Bukowitz

As companies continue to trade at many multiples of their book value, executives are beginning to look for ways to manage and measure the intangible assets that are increasingly recognized as large contributors to their organizations’ market value. Companies such as The Dow Chemical Company, Skandia and Buckman Laboratories International are developing measurement systems to assess how well they leverage organizational knowledge to create value for customers, which is ultimately reflected in stock prices. These organizations are developing measurement systems for intangibles that can:

1. align individual actions with organizational strategy, and
2. anticipate positive as well as negative financial outcomes in enough time to enhance the former and possibly avoid the latter altogether.

Articles by Others

Your Company’s Most Valuable Asset: Intellectual Capital by Thomas A. Stewart of Fortune Magazine

Business pioneers are finding surprising ways to put real dollars on the bottom line as they discover how to measure and manage the ultimate intangible: knowledge.

Dow Chemical had something like that in mind in 1993 when the company created a new job, director of intellectual asset management. The idea was to turn a passive function — central record keeping for Dow’s 29,000 in-force patents — into active management of the opportunities patents represent. Says Gordon Petrash, who holds the job: “Patents aren’t the only intellectual assets — there’s art and know-how — but they’re the easiest place to start.”

Easiest doesn’t mean easy. Petrash found that Dow exploited fewer than half its patents. Worse, most were orphans: No business unit was responsible for commercializing or licensing them. Surprised, Petrash checked with other companies and found that most have at least as high a percentage of unused, unattended patents — some worth potential millions but all costing money. (Keeping an invention’s patents in force over their lifetime costs some $250,000 in legal bills, filing fees, taxes, and so on.) Just from working with business units to create and weed patent portfolios, Petrash’s group has saved more than $1 million in its first 18 months.

Petrash’s chief contribution, though, is a six-step process for managing intellectual assets.

1. It begins with strategy: Define the role of knowledge in your business — for instance, the importance of intellectual investments to develop new products, vs. brick-and-mortar spending to achieve economies of scale.
2. Next, assess competitors’ strategies and knowledge assets.
3. Third, classify your portfolio: What do you have, what do you use, where does it belong?
4. Fourth, evaluate: What are your assets worth; what do they cost; what will it take to maximize their value; should you keep them, sell them, or abandon them?
5. Fifth, invest: Based on what you learned about your knowledge assets, identify gaps you must fill to exploit knowledge or holes you should plug to fend off rivals, and either direct R&D there or look for technology to license.
6. Sixth, assemble your new knowledge portfolio and repeat the process ad infinitum.

The method is straightforward, says Petrash, “but we don’t find anybody else doing the whole package.” Just making intellectual asset management an explicit task pays benefits. When Dow discovered a new way to make polyolefin plastics (one use: coating wire and cable), the six-step process — especially analyzing competition and technology gaps — led the company to plan its research and write its patent in ways that make it tough for rivals to work around Dow.

Petrash and Patrick Sullivan, a Berkeley intellectual property expert, are training Dow managers to master the process by sharing tips and best practices. Petrash says: “The business guys understand how to do this with their hard assets. We help them do the same with intellectual assets.” The long-range goal is to make managing patents as routine as managing any other asset — and to extend the work into less defined areas of intellectual capital, such as trade secrets and technical expertise.

The Gathering: Small But Perfectly Formed by Jeff Wild

“I had just finished a presentation at an LES (Licensing Executives Society) meeting in San Francisco in 1993 when a man came up to me and said that I was using his slides,” says Patrick Sullivan. “Having registered my surprise, he said that of course this was not literally true, but that he used a very similar set in the talks he gave at the company where he worked. He then introduced himself: it was Gordon Petrash, the head of intellectual asset management at Dow Chemical.” It was a meeting to be quickly followed by a further introduction, as a writer from Fortune magazine, researching an article on intellectual capital management, put Sullivan in touch with Leif Edvinsson, intellectual capital director at Swedish financial services company Skandia. Like Petrash, Edvinsson was charged with finding ways to capture and then convey the value of the intangible assets his company owned. “After years of working in isolation we were all beginning to find each other,” Sullivan says.

A Brief History of the Intellectual Capital Movement by Patrick H. Sullivan

Gordon Petrash Originally trained as an architect, Petrash joined Dow in 1986 as a development manager for construction materials. After successes in both construction materials management and in managing Dow’s Styrofoam films business, he was asked to create an intellectual asset management function to identify innovations or ideas that might have been overlooked by the corporation and bring them to commercialization if possible. Petrash developed an intellectual asset vision and implementation model, including approaches and tools to enable the company to maximize the value of its existing portfolio of intellectual assets. The success of this work led Dow to expand his responsibilities, Petrash was Dow’s Director of Intellectual Capital/Knowledge Management. Since 1998 he has been a partner with PricewaterhouseCoopers, specializing in consulting on intellectual assets with an emphasis on tax donations.

Knowledge Management (KM) and its Relationship to ICM

It should be noted that the term “Intellectual Capital Management” (ICM) was introduced by Tom Stewart through an article on Intellectual Capital published in Fortune magazine in October 1994 after it was first mentioned in discussions in his presence. The key creators of the term ICM are: Leif Edvinsson (Sweden), Gordon Petrash (USA), Hubert St. Onge (Canada), Patrick Sullivan (USA) and their associates. The first company to adopt a full ICM approach was Skandia (a Swedish Insurance company) in the 1990s under the leadership of Leif Edvinsson. The early pioneers (seven companies that include Dow Chemical, DuPont, Hewlett-Packard, Hughes Space and Communication, Hoffman LaRoche and Skandia) also got together in January 1995 to exchange notes and formed the first ICM Gathering in Berkeley, California, USA. From the “Value Creation” stream as practiced in Europe by ICM gurus such as Leif Edvinsson and the “Value Extraction” stream as practiced by leading US companies a holistic approach now embracing value creation, value extraction and value release has emerged as a powerful business tool which is the new and more powerful form of Intellectual Capital Management practiced by far seeing organizations to stimulate long term sustainable value.

A Discussion About Gordon Petrash’s Role at Dow Chemical

If money talks, then no one has more credibility to speak on the subject of intellectual capital management than Gordon Petrash.

Indeed, Dow Chemical, the $21 billion company that has elevated him to the position of global intellectual asset director, has witnessed first-hand the power of knowledge. As a result of his groups strategic efforts to manage intellectual assets, the Midland, Mich.-based manufacturer of everything from adhesives to polymers to polystyrene has already heightened the value of its patents by more than 400% and will save in excess of $50 million in related tax obligations and other costs over 10 years.

Dow’s vision, explains Petrash, is to develop a management process that maximizes the business value of its existing intellectual assets and helps to create new ones. The people who are involved in [these efforts at Dow] get excited about it, he adds. It captures their imagination.

The company, which was formed in 1897 and is now celebrating its 100th birthday, sells over 2,000 chemical-related products worldwide. It is organized into 15 major businesses and is engaged in more than 40 joint ventures. Half of its revenues come from international markets. Dow, which considers itself technology-driven, employs about 4,000 R&D people and spends $30 million a year maintaining and supporting its patent portfolio.

The company’s story illustrates the challenges that face other enterprises that hope to capitalize on knowledge. But it also clearly shows the rewards the tangible payoff that can be gained through the effective management of intangibles.

Dow first began exploring new ways to manage intellectual assets five years ago. With the support of high-level executives, a small group of individuals, which included Petrash, came together to examine how the company might reengineer its systems and processes to create more value. Out of this relatively unstructured and uncharted early effort arose an interest in rigorously managing the firm’s intellectual assets.

Corporate Strategist: Gordon Petrash by Barb Cole-Gomolski

• Knowledge-management effort at Dow helps company rein in patents, data
• Dow Chemical’s Gordon Petrash is harnessing the know-how of the chemical giant and making it available to the masses so the company can prosper

Gordon Petrash trained as an architect, but these days the only thing he’s building is a culture where corporate knowledge is seen as a precious business asset.

As the global director of intellectual asset management at Dow Chemical Co., Petrash heads up a group that determines how the Midland. Mich.-based chemical giant manages its intellectual assets. Those include patents. trade secrets and the collective know-how of the company’s knowledge workers.

Petrash’s goal isn’t just to harness information, but to use it to increase revenue, cut costs and make Dow — which has annual revenue of more than $20 billion — more competitive in the marketplace. Focusing on intellectual asset management also helps reveal what the company lacks, Petrash said.

Getting its patent portfolio in order revealed that maintaining those patents cost about $2 million over 10 years. And about half of the patents “were basically an insurance policy that we never intended to use.” As a result, the company weeded out some unused patents, Petrash said.

He said Dow also has been able to enter into two ventures in which it contributed knowledge and its business partner contributed all the hard assets. Though he said the ventures were lucrative, Petrash wouldn’t provide details about them.

Steve Grace, the company’s general patent counsel, said Dow was like a lot of companies in that ‘a lot of our information scattered throughout the organization in different places.”

Grace said the asset management system has turned his team of attorneys from knowledge caretakers into advisers. “We’re a lot better at providing our clients (within Dow) with the information they need to make decisions,’ he said.

Petrash said companies starting out in intellectual asset management should begin with the most tangible parts of the business.

In Dow’s case, that was its patents. “We didn’t manage them well, and everyone understood them,” Petrash said.

Only now — five years into its asset management efforts — is the company looking to capture employee know-how.

Many companies appoint a chief knowledge officer (CKOJ to build a system for delivering corporate know-how to the masses, but Dow hasn’t.

“The ultimate CKO needs to be the chief executive officer” said Petrash, who believes that asset management needs to become ingrained in the corporate culture and “integrated with everything” to be successful.

In terms of technology, there is no silver bullet, Petrash said. Dow doesn’t have Lotus Notes, which is a popular platform for such applications.

“We use electronic mail, the Internet, databases, patent-tracking software, voicemail and document management systems,” Petrash said. They are all part of Dow’s intellectual asset management system, he said.

Incentives

But putting the technology on workers’ desktops is only part of the picture. Petrash said. It is just as important to build a culture of sharing.

Petrash said Dow has benefited from being a “technology-driven company that is used to sharing.” Still, Dow rewards mentors and those who share knowledge with faster promotions and bigger raises, he said,

Managing knowledge isn’t new, Petrash said. “Successful companies have been doing it for a long time,” he said.

Dow’s ability to profit from its knowledge management program is unusual, said Carl Frappaolo, vice president of The Delphi Group. a research firm in Boston.

“Dow has discovered that there is great value in just knowing something, and they are not afraid of selling that know-how,” Frappaolo said. “The days of coming out with a product that is your cash cow are gone. Now, it’s just a short amount of time before your competitor figures out what you are doing and duplicates it.”

The value then isn’t in your trade secret, it’s how you got there, Frappaolo said.

“What Dow is doing can enable them to be one of the pioneers in the knowledge-based economy’ he said.

Book Chapters

Profiting from Intellectual Capital: Extracting Value from Innovation by Patrick H. Sullivan — Chapter 15: Intellectual Asset Management at Dow Chemical

Knowledge Management: Classic and Contemporary Works edited by Daryl Morey, Mark T. Maybury, and Bhavani Thuraisingham — Section Introduction: Strategy: Compelling Word, Complex Concept

Strategy: Webster’s definition

• A: a careful plan or method: a clever stratagem.
• B: the art of devising or employing plans or stratagems toward a goal.

The way the word “strategy” is defined and understood within an organization is critical before any meaningful discussion about “Strategy” (with a capital S) can take place. This is somewhat evident in the chapters that make up the knowledge management strategy section. Each of the authors advances the notion of strategy with a slightly different definition and in varying contexts. All of their uses of the word and concept are valid. The imperative is that the author defines the term and that the reader understands the context.

I am continually perplexed with discussions regarding mega-terms and concepts like Strategy, Learning Organization, Leadership, Intellectual Capital, and Knowledge Management because of the shear challenge of bringing the participants to a common understanding of the definition of terms being referenced. It doesn’t matter that there may not be a common agreement on these terms as long as I understand your meaning and you mine.

Therefore, for the sake of this discussion, my use of the word Strategy is defined and elaborated as follows — a plan and a process that accomplishes the enterprise’s desired outcome. It is a plan for action with clear and measurable goals linked to these outcomes. It is many times dynamic, having the ability to adapt to new information or situations. In the end it is the enterprise’s best knowledge and collective experience focused on the accomplishment of its goals.

The Enterprise Strategy is the road map of how to get to the desired destination. It is not the primary purpose of the strategy to determine whether the destination is correct. That is left to the “vision and purpose” of the enterprise. The strategy may reveal things about the vision and purpose and certainly can impact them. But all too often within organizations, the strategy and the vision get intertwined and begin to cause each to lose focus and discipline.

Peter Senge addresses the importance of the definition of terms in context. His paper “Reflection on ‘A Leader’s New Work: Building Learning Organizations,’” characterizes part of the problem with the advancement of the concept with the “sloppy use of the word leader.” How the word is used in organizations is different from how it is used within the literature. He points out that leader is often meant to mean executive, which in many cases preempts leadership from occurring elsewhere in the organization.

Peter has adopted the definition for leadership by organizations as the following: In the abstract — “leadership is the capacity of a human community to create its future.” In operation — “leadership is the ability in an organization to initiate and to sustain significant change, to work effectively with the forces that shape change.” I find these definitions of leadership very palatable.

Peter also defines “knowledge” “as the capacity for effective action, clearly distinguishing it from data and information.” Knowledge and Knowledge Management are words and terms that are being bantered around quite a bit today. Peter makes an observation that these are terms that have become fads. He makes the point that Knowledge Management is just another term in the ongoing continuum of business management evolution.

Leaders enable transformation. Creating a learning organization is one of the vehicles for accomplishing this. Peter’s paper is thought provoking and challenging regarding these often-used terms and concepts.

David Skyrme’s paper, “Developing a Knowledge Strategy: From Management to Leadership,” supports the premise that knowledge management has flirted with becoming a fad but in fact, has move beyond fad to take its place as part of the ongoing business management improvement evolution. The management of knowledge has firmly taken its place as one of the fundamental elements required for developing strategy. David attributes knowledge management’s attainment of this stature in the past few years through the following sequence of events.

1. Recognition that knowledge and other Intellectual Capital have value by underpinning value creation and future value, both of which impact share price
2. Demonstration of clear business examples where management of knowledge has given companies competitive advantage
3. Availability of improved collaboration technology
4. The realization that business processes are a continuous evolution and knowledge management was the logical next step

The integration of knowledge management processes and principles into business strategy has significant measurable benefits that are outlined in his paper “The Knowledge Advantage.” David certainly helps to make the case for knowledge management as a real part of the business management process and strategic thinking. He breaks the knowledge contribution to strategy into two “Thrusts.”

1. Making knowledge that is already known easily accessible.
2. Innovation, the creation of new knowledge that has value.

David advances the value of knowledge management by referencing very clear and measurable “Levers.” Knowledge management in practice is not linear; it laces the management of explicit knowledge and tacit knowledge together with the value proposition cited in the strategy. Managing knowledge is not an easy task. He describes the management of tacit knowledge as an “oxymoron.”

Because it is difficult and messy doesn’t mean it cannot be done. David presents very real approaches to managing knowledge more effectively and as an element of the business strategy. I particularly subscribe to his prediction that future business success will be determined through “Knowledge Leadership” rather than “Knowledge Management.” The enabling of the knowledge movement and innovation rather than the hard processes of disciplined management would seem to be more palatable to creative people, thus encouraging better performance and more successes.

“Knowledge Sharing Is a Human Behavior,” by William Ives, Ben Torry, and Cindy Gordon, really focuses on people as the key element of successful knowledge management. “Sharing insights and best practices is a human behavior that is critical to the success of any knowledge management system yet it is counter to the culture found in most organizations.” This is a fact that we all know and experience day in and day out in our work and personal lives. Andersen Consulting has developed a human performance model that specifies what a person needs to optimally perform any business task, as well as what leadership must be provided in order to align performance with business strategies.

They have identified the following principal factors:

• Understanding the business context.
• Organizational performance factors — structure and roles, processes, culture, and physical environment.
• Individual performance factors — direction, measurement, means, ability, motivation.

These factors must work in concert in order for human performance to be optimized. Each is necessary but by itself, not sufficient.

Knowledge management is personal. It is difficult and uncomfortable to put performance perimeters around humans. But it can be done and is being done every day in every organization. In many cases it is not formalized or explicit. The authors have put together a compelling argument that for organizations to be successful, they need to share knowledge. Their paper effectively shows the key factors that must be managed in order for this to effectively happen and ultimately impact organizational performance.

I think this chapter will stir some controversy among those that feel we are coming ever closer to managing and measuring people by some overriding business management process. And in doing so, we may start to lose the individual’s face in the attempt to more effectively manage human capital to enhance organizational performance. I conceptually buy into the Andersen Consulting “Human Performance Model.” How it is implemented and presented by leadership, as in so many cases of implementing business models, is critical to its success.

“Building Intangible Assets: A Strategic Framework for Investing in Intellectual Capital” by Patricia Seemann, David De Long, Susan Stuckey, and Edward Guthrie, addresses intellectual capital, its definition, and how better managing the raw material “knowledge,” builds more of it.

The authors describe Intellectual Capital as being composed of Human, Social, and Structural Capital. All three are further defined in the paper. I particularly like their definition of knowledge management — ”the deliberate design of processes, tools, structures, etc., with the intent to increase, renew, share, or improve the use of knowledge represented in any of the three elements of intellectual capital.”

I have used Figure I.1 to define Intellectual Capital and show the impact the management of knowledge has on it. The knowledge flows grow each of the types of capital and at the same time, brings them into a more coincident position. In both dynamics, the area in the center, “Value,” increases in size. This is the conceptual high ground, high value that is targeted by Intellectual Capital Management, Knowledge management, and Learning Organization concepts. This paper fits nicely into my own philosophy of Intellectual Capital.

Each of the papers has different definitions and approaches to key elements that are critical to strategy. These differences in no way should distract the reader from seeing the underlining similarities in the analysis and themes of all four of these papers. I have gleaned the following from them:

• The definition, and the context of the terms must be understood before dialogue and action take place
• Knowledge management is but another step in a continuum of the ever-evolving business management process
• Intellectual Capital, Knowledge Management, and Learning Organization are terms rooted in action and the creation of value
• An integrated approach that blends into existing business practices is the most effect way to cause sustainable positive change
• Measures are critical for successful implementation
• An enabling leadership approach is the preferred approach
• Cultural change is needed for sustainable benefit
• It all starts with the individual and ends with the individual. Models and processes do not create new knowledge or value only people do
• A winning business strategy must have the management and leveraging of knowledge as one of its cornerstones
• Strategy is the implementation of knowledge toward measurable objectives that accomplish the enterprises vision and purpose

To quote Charles Savage, a leading thinker and mentor in the area of Strategy Development, Intellectual Capital Management, and Knowledge Management, “we are on a long journey and the trip has just begun.” These papers will catalyze readers to focus their thinking on a critical aspect of business management and possibly advance their own and our journey toward an ever evolving business model that enables the creation of “value.”

Book References by Others

Intellectual Capital: The new wealth of organizations by Thomas A. Stewart

By the same token, companies that have begun digging into their knowledge assets have discovered that they are at the mouth of a gold mine. Dow Chemical Corp. found its rich seam of gold almost by accident. The company had spring cleaning in mind in 1993 when the company created a new job, director of intellectual asset management. The idea was to turn a passive function — central record-keeping for Dow’s 29,000 in-force patents — into active management of the opportunities patents represent by cleaning up the portfolio and seeing what additional licensing revenue might be obtained from them.

Says Gordon Petrash, who holds the job: “Patents aren’t the only intellectual assets — there’s art and know-how — but they’re the easiest place to stan.” Easiest doesn’t mean easy. Petrash found that Dow exploited fewer than half its patents. Worse, most were orphans: No business unit was responsible for commercializing or licensing them. Surprised, Petrash checked with other companies and found that most have at least as high a percentage of unused, unattended patents — some worth potential millions but all costing money. (Just as the owner of an empty building still owes property tax and has to keep the plumbing and the roof fixed, so it is with intangible assets: Keeping an invention’s patents in force over their lifetime costs some $250,000 in legal bills, filing fees, taxes, and so on.) Just from working with business units to create and weed patent portfolios, Petrash’s group saved more than $1 million in maintenance costs in its first 18 months.

The value of the gold that was hidden inside Dow is stupendous. Over ten years, Petrash figures, Dow will save about $50 million in tax, filing, and other maintenance costs. Even better: By bringing valuable but unused patents out from the corporate attic, he estimates that the company will increase its annual revenue from licensing patents from $25 million (the 1994 total) to about $125 million by the year 2000. And these, remember, are the savings and revenues just from attending to Dow’s most obvious intangible assets, the codified know-how represented by patents. The long-range goal is to extend the work of knowledge management into less defined, and more valuable areas of intellectual capital “art and know-how,” trade secrets and technical expertise. That, Petrash asserts, is worth billions.

Comprehensive Intellectual Capital Management: Step-by-step by Nermien Al-Ali — Chapter 9: The Pioneers of Intellectual Capital Management — Skandia and Dow Chemical

“It’s certainly not to say that Dow or any other corporation has not managed its intellectual assets; in fact, I believe there is a direct correlation between how well the intellectual assets of a corporation have been managed and its financial success. The opportunity is in being able to visualize, better measure and manage them.” — Gordon Petrash, formerly of Dow Chemical Company and the leader of the Intellectual Asset Management initiative and currently chief strategy officer at Delphion

Petrash continues to explain that though many corporations now know how to manage their intellectual assets, particularly when it comes to innovation and intellectual property (IP), the real challenge lies in two areas — knowing the “how” of managing knowledge, and adopting an appropriate model of intellectual capital management (ICM) as a whole wherein all forms of IC are visualized and managed.

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.” 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. 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.