The licensing of intellectual property continues its climb up the agendas of senior-level executives at leading companies. That's the finding of McKinsey & Co.'s most recent survey of licensing activity, a follow-on to a 2003 survey. Final results are still being tallied, but a preliminary look at the data shows that respondents believe that over the next two to five years the management of licensing will become more strategic, and the value and complexity of deals will increase.

McKinsey surveyed 62 corporate executives, officers and managers at companies with annual R&D budgets of $50 million to more than $1 billion. The industry in which a company operates has plenty to do with how strategically IP is managed, and 34% of the survey pool came from the licensing-intensive pharmaceutical and biotech sectors (see chart). Still, the results indicate that more strategic licensing is likely even within industries in which IP management plays a less central role.

That forecast is based on the shifting reporting lines for licensing heads, continuing a trend seen in the earlier survey. Only 6% report to general counsels, compared with 28% to CEOs and 26% to corporate development officers. The majority work in corporate or business development departments; just 4% are based in legal (see chart).

As reporting moves higher up the management chain, licensing managers are under pressure to maximize returns. The licensing teams that are best at finding marketable IP, according to survey co-author Meagan Dietz, are those with systematic cross-functional teams, able to connect with business units, legal and finance departments, R&D labs, even corporate venture groups.

Finding managers with the right skills to lead a licensing operation was a challenge noted by survey respondents in both 2003 and 2005. That may not be so surprising considering the attributes a well-rounded licensing manager needs: technological savvy to spot marketable IP inside and outside the company, mixed with the financial expertise to vet deals, the marketing skills to sell IP and the negotiating skills to close deals.

When it comes to identifying licensing partners, networks are king, and familiarity breeds more deals. "Once you do a deal with someone, a follow-on deal typically takes one-third of the time," says Dietz. The payoff can be significant. "It's pretty consistent that there's a correlation between companies that are able to manage high deal volumes and high licensing revenues and the breadth of their partnership networks."

Managing those relationships, along with the content and finances of licensing deals, is expected to lead to greater deal complexity, identified by 73% of respondents as the factor most likely to influence their IP management in the next two to five years. Managing relationships was cited most often, according to Dietz, especially in light of the growing number of multipartner deals.

Overall, survey participants predict a vibrant licensing market. Forty-one percent expect dollar volume from out-licensing technology to increase 10% to 50% over the next five years, and 60% of companies expect a similar increase from in-licensing activity. Despite that upbeat forecast, resistance to in-licensing technology from external sources was an issue for both 2003 and 2005 respondents. In the latest survey, 42% of respondents said that their R&D units resist external development.

"You find companies that are culturally averse to bringing in technology that others have developed," says Dietz. "They ask, 'Why are we spending so much on our own R&D if we're just going to rely on the external world?' "

Still, with 56% of respondents saying their company executives see a "clear link" between licensing activity and the company's competitive advantage, such resistance may start to erode. - Suzanne Stevens

Join Corporate Dealmaker's LinkedIn forum