Measure of Design M&As: Exploratory investigations of IP analysis in design

Despite active participation of design firms in M&A markets, there has been little research measuring the value of design M&As. It is partially due that design has been seen to be an intangible asset. This paper seeks to the understanding of the value of design M&As and provides a possible metric for measuring the value using patent analysis. The value of design M&A was investigated at two levels: Design as differentiator (i.e., new product development) and Design as coordinator or integrator (i.e., organizational growth). The evolution of patenting quantity (e.g., the number of design patent applications, Locarno classes) and quality (e.g., forward citation, co-inventor networks) in preand post-acquisition deals was suggested. We conducted a case study using the design and utility patents of Adobe Systems Inc. The results show the dynamics of innovation area and the presence of the high values of inventors holding design-tech linkage, which could be a potential intangible source of company growth. This study further provides implications for companies which might consider design M&As as new ways of design investment.


INTRODUCTION
"Businesses started by designers have created billions of dollars of value and are raising billions of dollars in capital, and VC firms increasingly see the importance of design" (Maeda, 2015, p, 10) The value of design has been heralded in many tech businesses and the venture capital companies (Stamm, 2004;Maeda, 2016: Kim et al., 2017, and design is viewed widely as a key role to providing a strategic competitiveness in new product development (NPD) and organizational growth (Roy and Riedel, 1997;Borja de Mozota, 2002;Cañizares and Atondo, 2017). Design in Tech (Maeda, 2015) has reported that 36% of the top 25 funded start-ups since 2013 were co-founded by designers, such as Airbnb, Pinterest, Github and Slack. In a market of mergers and acquisitions (henceforth M&As), design has never been more valued as a financial force, nor has it been as competitive of an investment for tech businesses as it is now. Many tech companies recognize the ability to understand the human behavior and context, and they use that knowledge and their creativity to accelerate the innovation activities as a source of competitive advantage (Lengnick-Hall, 1992;Albrecht et al., 2015).
From 2004 to 2017, 85 design firms or agencies were acquired by large companies, especially in the ICT industry (e.g., Google, Facebook, Adobe). More than half of them were acquired between 2016 and 2017 (Maeda, 2017). Figure 1   Google successfully acquired the design firm "Gecko Design" for its Google X labs in 2014, in an aim to investigate product design competitiveness and creativity as Google expanded beyond software (e.g., Google glass, project Loon). One of the oldest design firms in Silicon Valley, Lunar, was acquired by McKinsey & Company in the same year, with the hope to bring design forward in its corporate strategy and bring about a creative thinking culture. As more businesses understand the role that design can play in shaping their innovation activities and creative organizational culture, this type of move will likely increase in occurrence.
Despite such active participation of design firms in M&As, there has been little research measuring design M&A performance due to the nature of design as an intangible asset (Borja de Mozota and Kim, 2009). At best, a few studies have attempted to provide an empirical analysis to measure design activities and investment effectiveness to demonstrate the value of design (Gemser and Leenders, 2001;Chiva and Algere, 2009). Most of these studies have been limited to the NPD performance in design, not determining the value of design at the company level. Other essential intangible assets of design have been underrepresented (Borja de Mozota and Kim, 2009) such as human capital, referring to the talents of designers . A Measure of Design M&As: Exploratory investigations of IP analysis in design. Strategic Design Research Journal, volume 12, number 01, January -April 2019. 43-61. Doi: 10.4013/sdrj.2019.121.04 and innovators as individuals and on teams that will strengthen the next workforce, knowledge capital (e.g., intellectual property) and so forth..
In this context, this paper provides a much-needed exploration of a new and important topic of design M&As and possible metrics for measuring their performance. The measure of design M&As mainly investigates the evolution of patenting quantity and quality in pre-and post-acquisition deals. Patents provide very powerful data for firms' strategic changes and innovation performance, including the number of patents, inventor information, etc.; however, only very few pioneers (Filitz et al., 2015;Yoshioka-Kobayashi et al., 2018) have addressed it as a potential measure from a design management perspective.
The present study suggests possible patent metrics to measure the value of design M&A deals in view of innovation in new product development (NPD) and organizational growth.
Adobe Systems Incorporation's M&A case was selected as a case study. Adobe stands out among the recent design M&As in large part thanks to the success of Adobe's cloud conversion. Beginning in 2011, a massive number of acquisitions were conducted, including mobile and web tech business and design startups and firms (e.g., Typekit and Behance) within a very short time period (see Figure 2).. This paper is organized as follows. First, we introduce potential measures where patent metrics have been used to examine M&A activities and further attach them to a design management perspectives. Second, Adobe's patent data from 1988 to 2018 are analyzed to verify the suggested patent metrics, and its strategic changes pre-and post M&A deals are examined. Finally, the results and their implications for further research and practice are discussed.

PATENT ANALYSIS FOR MEASURING THE VALUE OF DESIGN M&AS
An M&A is defined as a consolidation of two companies and is used as a growth strategy (Faulkner et al., 2012). Along with a sharp shift in technology -e.g., Digital, AI and IoT -and digital consumer behavior, many IT giants are using M&As as a strategic expedient to capture disruptive innovation growth opportunities (Deloitte, 2017). Indeed, powering design-led growth through acquiring design firms and start-ups might provide companies with the competitive advantages of boosting digital engagement with customers and increasing customer relationships, brand and loyalty, which can directly affect the intangible assets of a company. As intangible assets are usually much more costly to imitate than tangible assets, the competitive advantages of firms are usually based on the allocation of intangible assets such as patents (Barney and Hesterly, 2010 cannot be accurately measured, companies must develop and increase their growth by proactively focusing on patents according to the resource-based view (RBV).
Borja de Mozota (2003) suggested that the competitive advantages of a firm through design can take two forms: Design as differentiator (e.g., new product development, brand image) and Design as coordinator or integrator (e.g., organizational growth, teams). The first concern is in line with the traditional measurement of M&A performance referring to innovation in NPD -e.g., the number of patents (Meglio and Risberg, 2011). Patent databases represent an appealing data source for tracking and assessing innovation. Patent data is publicly available, and patent systems have been instituted as a mean to protect valuable intellectual property (Mogee, 1991). As such, patents provide one measure of the flow of information associated with a firm's innovation and reflect the NPD status of a company, its activity in R&D, and its strategy concerning NPD (Grimpe and Hussinger, 2008). One of the objectives concerning M&As on intangible aspects is very often to protect intellectual property by adding people who will have more ideas in R&D or to "buy" intellectual property to obtain more protection in the field they work in. Examples of patent metrics include the number of patents granted each year, allocation of utility and design patents, and the number of utility patents by the International Patent Classification (IPC), which refers to technical fields and industrial sectors. The number of design patents are specially codified with Locarno classes and counted. The Locarno classification indicates the product categories in which the designs are intended to be applied (WIPO, 2018).
In addition to patenting quantity, patent citation analysis can measure the quality of patent based on an examination of the citation links among different patents. Citation analysis is essential in that many studies continually revealed a strong positive relationship between citations and technological impact (Albert et al., 1991). The study of Breitzman and Thomas (2002) stressed out the importance of this citation measure to value the M&A candidates.
The second concerns Design as coordinator or integrator. This is a particularly novel approach compared to the conventional measures of M&A performance. Examining the dynamics of inventor movements in patents would be a means to clearly explore the people and skills organization at the company level. The inventors who have co-authorship data for a patent can construct an inventor network in the company. The underlying assumption is that tacit knowledge (e.g., design or technology) flows among individuals and organizations according to the contribution of an inventor's mobility (He and Fallah, 2009). Indeed, knowing the profile of the principal inventors who have produced the most patents in a specific technology or design section is crucial, in that M&A activities often lead to a

METHOD A CASE STUDY: ADOBE ACQUISITION ACTIVITY AND DESIGN
Since Adobe first announced the Creative Cloud initiative in 2011, Adobe has completed 17 M&A deals and many analysts report that a key to Adobe's cloud conversion has been its acquisitive activities (Adam, 2017). Figure 2 shows Adobe's acquisition deals since Adobe's first acquisition deals with Emerald City Software and BluePoint Technologies in 1990. The Adobe case is particularly suited to examine how the design M&A affects innovation in NPD and organization. Between 2011 and 2013, Adobe set out to investigate the acquisition activities in design by targeting creative professionals and designers, which was a new approach. In 2011, Adobe first acquired Typekit Inc., which offers web-based typography and holds 250,000 web font subscribers, as a part of a larger creative cloud service offering (Dean, 2011). The next year, Adobe acquired Behance, an online community with a creative professional portfolio and relevant business. In 2013, a San Francisco-based design consultancy that specializes in "the design and user experience of smart applications, digital products and networked communities", called Ideacodes was acqui-hired. These consecutive transactions have marked a crucial turning point in the company strategy, shifting to a software company as a service community. Kim

Trends in annual applications
We have collected Adobe's patent applications from the USPTO database.

Evolution of innovation fields using IPC and Locarno international classes
Adobe patents in different technical fields and industrial categories were identified using the International Patent Classification (IPC) and Locarno classes were identified. Note that the IPC classes were only designed for utility patents; we mapped the Locarno classes to design patents instead.
Among a total of 4,526 patents, Adobe innovation displays 72 different IPC classes and 6 Locarno classes.  influence other patents and hold a forward citation to others. To counter this concern, the number of forward citations was compared to those of patents granted over time. Table 3 shows the evolution of forward citations according to the main IPC and Locarno classes: G06F, G06K, G06T, H04N, G09G, H04L, 14-04 (Design), G03B, B41J, G06Q, and 32-00 (Design) accounted for 94% of the total forward citations. design patents that were cited, the class 32-00 received an average of 625 forward citations while the class 14-04 received 1,402. The average design patent quality of the 32-00 can be thus interpreted to be better than the class 14-04, which shares the most number of design patents.

The dynamics of Adobe organization: an inventor network
The inventor network analysis was employed to measure the value of design M&As, in the view of design as coordinator or integrator. In a patent inventor network, degree centrality and modularity can analyze an inventor's innovation activeness and close or broadness of organization in time changes, which are key factors for identifying the dynamics of a company's organization. A network analysis, Gephi™ v.0.9.2 and Circle pack layout (Hierarchy 1: Modularity class, Hierarchy 2: Degree centrality) for visualization were used (Bastian et al., 2009). The summary of the results of the inventor network analysis is, as shown in Table 5. Figures 4 and 5 compared the inventor networks by clusters using a modularity measure. First, the metric of degree centrality was employed for understanding the level of connections to other inventors (Newman, 2004). Here, each node represented patent inventor. Whenever there were multiple common inventors involved with a single patent, we patents. Most patents were recently acquired rather than developed in house. We can notably see the presence of the organization broadened a lot compared to the inventor networks in the pre-acquisition period.
Third, we identified the modularity value to determine the closeness of the nodes (here, inventors) within similar patent fields. A modularity value implies a strong structure of a team and helps to find the active inventors in the group. In both periods, the values were more than 0.70, which pointed to a very strong group structure in the network (Q value 0.30~0.50: a reasonably strong group; above 0.50: a very strong group; Valente et al., 2015).  There is a big shift in the responsibilities taken to focus more on the new direction -notably Adobe Sensei. Indeed, the triangulated connection with small clusters among Cluster B (Data processing), Cluster C (Big data, Experience) and Cluster E (Cloud Architecture) is also noticeable. The evolution of inventors revealed a real move of the company between the former top inventors of Adobe, the historic inventors of Adobe, and the new inventors.
Further, it would be interesting to look at a value of degree centrality of the inventors and inventors' groups. The degree centrality of an inventor is the count of the direct connections between the focal inventor and other co-inventors in the network. An inventor or inventor's group with a high degree centrality can secure considerable reliability of information and is a highly influential actor in a network (Choi and Park, 2016). Based on this concept, Adobe's inventors were divided into three groups: Design group, Technology group and Design-Tech group, according to the counts of design and utility patents in their patent portfolio. For instance, an inventor having both design and utility patents was grouped in Design-Tech group. course, more possibility of becoming influential actors in the center of organization, than those producing design or utility patent soley.

CONCLUSIONS AND FUTURE WORK
The aim of this paper was to explore a possible metric for measuring the value of design M&A activities in two forms: Design as differentiator (e.g., new product development) and Design as coordinator or integrator (e.g., organization). This study focuses on quantitative measures of intangible assets, in particular, patent quantity and quality. Patents provide very Kim powerful data for analysis of M&A performance; however, they also have some deficits in measuring design M&A value. For instance, design patents are to protect novel product shapes, but do not include special consideration of intangible features such as the semantics or meanings of products (Yoshioka-Kobayashi et al., 2018). The principal experience design manager at Adobe, Liang-Cheng Lin, interviewed that "design patents issued might not represent the fanciest or most creative ideas we explored" (Adobe blog, 2015). This quote means that adding the value of design as differentiator cannot fully result in a design patent, so other metrics are needed here. Galindo-Rueda and Millot (2015) and Bruce and Bessant (2002) have addressed the concern that good product design is sometimes protected by utility patents and other kinds of intellectual property rights.
Interestingly, our metric of forward citation provides some rather rich information. A crucial benefit of citation analysis is that it uniquely displays the relations of design and utility patents. For example, using citation data, we can identify how knowledge spillovers originating from design affect the technological innovation that results in a utility patent (Design 32-00 case in Table 3).
As for design as coordinator or integrator, we can draw several interpretations attached to organizational reshape. One of the biggest challenge is how to embrace the culture of organization during the acquisition. The evidence of Adobe proves that the activities of designers were not isolated from the technology development team after the massive acquisition deals in 2011. The team was well connected (team network degree = 3.07 and 4.17, before and after 2011, respectively) and pursued the core business area of "Adobe Sensei Platform".
Of course, many large companies also tend to keep the creative team in separated to empower their culture of coming up with new ideas. This is a rather different decision in an organization, and it holds the potential for success or failure in the long-term view, which is presently still under debate. Considering the noticeable value of an inventor network as a new metric to understand organizational directions, this would further address the value of designers in business development and growth.
Beyond these limitations, this paper contributes to future metrics measuring design-relevant activities at the company level, by confirming the quantitative approach with a patent data source. Attempting several patent analyses, a new breed of design M&A activities in the area of organizational dynamics and new product development processes for design innovations can be studied.