The global economy is crackling with fast-paced innovation, but the fruits of innovation are also increasingly vulnerable to theft amid fierce competition, fragmentation of supply chains, and digitization of information. In this environment, companies urgently need to focus energy and resources to safeguard intellectual assets -- particularly trade secrets that are not well protected by law. To be effective requires an approach that is systematic and dynamic.
A recent EBN blog entitled Trade Secrets: Protecting Your Key Assets looked at the risks of trade secret theft and outlined some of the ways companies can begin to address the risk of theft in their supply chains, so they can benefit from the global marketplace without jeopardizing business-critical trade secrets. This blog highlights a detailed framework for assessing, prioritizing, and protecting these assets -- internally and in the supply chain -- published in a recent report (registration required) by CREATe.org and PriceWaterhouseCoopers (PwC).
Trade secrets come in many shapes and sizes. Often companies have an incomplete picture of these assets and where they reside -- physically and virtually. For instance, a company may have confidential product information, such as new hardware designs, updates of existing products, or proprietary findings from research efforts that give it a competitive edge. Trade secrets may be in the form of a unique process for manufacturing or a novel application of IT that could create new markets. They may be customer lists, merger and acquisition plans, market research, or other sensitive business information.
In the first level of the framework, the company takes the basic, yet critical, step of identifying and categorizing its trade secrets. By creating a comprehensive inventory, with participation by senior executives, business unit leaders, and corporate functional leaders, the company lays a foundation for protecting the trade secrets whose theft would cause the most damage.
Using the framework, the company then assesses potential threats to its trade secrets given its industry and operating environment -- including such factors as office locations, its sales/marketplace footprint, its supply chain operations, the product/service mix, key personnel, and growth strategies. For many companies, competing firms or insiders with access to trade secrets present the greatest threats. For some, government-backed entities with nationalistic goals or hackers with political motivations may pose the greatest threats.
This step also looks at vulnerabilities that may be exploited by these threat actors. Security gaps can come from a lack of training on information security, from employees using software without routinely checking for updates, or from storing a valuable trade secret on an unsecured server with broad access within the company. Often lapses are caused by carelessness -- an employee leaving blueprints or information out or sending an ill-considered email.
With this assessment of trade secrets, threats, and vulnerabilities, the company moves to the final steps in the framework. These include calculating and ranking the immediate cost and long-term damage that would be caused by misappropriation, developing a resource allocation strategy accordingly, and establishing a trade secret protection system -- internally and in the supply chain -- with a return-on-investment rationale.
The overall impact of trade secret theft is clearly very high, if difficult to calculate. The CREATe/PwC report estimates the cost of this illicit activity at 1% to 3% of GDP in the US and other advanced economies. Beyond the immediate cost to individual companies, trade secret theft threatens to stifle innovation and investment.
With so much at stake, companies, industries, and governments are considering ways to address the issue. The report, drawing from workshops with private sector participants, offers some scenarios illustrating how these efforts may shape the future economy. In the meantime, companies can go far to protect their trade secrets by taking a practical and systematic approach to these assets and developing an investment strategy that deals with the current reality and risks.