Denis Bayart
email: bayart@poly.polytechnique.fr.

Yves Bonhomme
email: yves.bonhomme@lipha.fr.

Christophe Midler
email: midler@poly.polytechnique.fr.

Management Tools for RetD Project Portfolios in Complex Organizations

Keywords: Project portfolios, pharmaceuticals, decision processes, interactive research

ou non, émanant des établissements d'enseignement et de recherche français ou étrangers, des laboratoires publics ou privés.

INTRODUCTION

Project Portfolio Management (PPM) is a growing issue in both professional (especially pharmaceutical) [1] and academic circles [2, [START_REF] Azzone | An option-based method to evaluate strategic investments in new product development[END_REF][START_REF] Cooper | Portfolio Management for New Products[END_REF][START_REF] Cooper | Best Practices for Managing R&D Portfolios[END_REF] due to two convergent trends. On the one hand, increased allocation of resources to high-capacity, rapid-development processes is leading to new needs for methods suited to such R&D decisions. On the other, innovation performance is becoming a major criterion in evaluating a firm's efficiency, and so creates new constraints in terms of communication on the domain of R&D projects. Formalized tools thus provide a way to make the PPM competency more visible from the outside.

The research done by Cooper et al. [START_REF] Cooper | Best Practices for Managing R&D Portfolios[END_REF] has pictured the variety of PPM formalized approaches, defining four types (financial, strategic, scoring and "bubble diagram") and reached conclusions on efficient practices: top performers use explicit tools in a "hybrid" approach combining different types. A more precise comparison of the benefits and limits of the various approaches is still, however, a matter of debate.

The aim of the present paper is to provide an evaluation of these tools in the context of an analysis of organizational functions  what precisely are the functions of these management tools in complex organizations? Who is to deploy them? And why? Is there a more precise link between the tool, the specific features of R&D activity which it is its task is to represent and evaluate, and those of the structure in which the tools are deployed? What can we infer from a given representation in a given situation?

This paper sets out to provide the beginnings of an answer to these questions in the light of interactive research which has been conducted since late 1997 with the Lipha pharmaceuticals group (an associate of Merck KGaA, Darmstadt, Germany). At the time the research began, this corporation had already been experimenting for four years with a formalized project portfolio management approach. This has led to a general overview of the results of the trial and has also conducted a comparison with more recent approaches analyzed in the literature. To accomplish this, we have tested some thirty or so tools by applying them to the real corporate portfolio. These simulations were assessed through a working group whose members were the company's main managers for R&D, strategic marketing and business analysis, those in charge of heading up project portfolios and researchers. This phase of analysis and proposals was completed in March 1998 with the presentation to the corporation's R&D steering committee of a scenario for future development of the portfolio management system, a scenario which is currently in the course of implementation.

In the first part of this paper, we analyze the portfolio management experiment conducted by this company. This reveals two types of driving force behind the current modernization of PPM: first, the dynamic of R&D strategies and, second, the constraints linked to the control of world-class industrial groups formed by a process of external acquisition.

In the second part of the paper, we shall present the theoretical framework we deployed for the analysis of the role of management tools in complex organizations. This framework [START_REF] Moisdon | Du mode d'existence des outils de gestion[END_REF][START_REF] Centlivre-Petit | Outils de pilotage économique et dynamique d'apprentissage local dans une structure multidivisionnelle Thèse de l[END_REF] identifies as levels relevant to comprehension the organizational functions of a specific instrumentalization the organizational context and the decision process in which the instrument is involved, the tools' conceptual apparatus, the ergonomic properties of the visual representations provided by PPM tools and the data process which supports such PPM applications.

We present then, on three levels, the results of the application of this theoretical framework to the company studied. General lessons can be drawn from these results as to the implementation of such sets of instruments in the context of world-class pharmaceuticals groups:

On the basis of a typology of situations for the use of project portfolio management tools, we demonstrate the variety of representations adjusted to suit the contexts of use. We link up a description of the characteristic features of the research strategy (an exploration targeting worldwide therapeutic goals, oriented towards research on "Block Busters", growing openness of R&D to the problematics of "swapping" on-going projects) and the nature of the representations relevant to their control. We also link up the type of internal control used in the corporate group and its maturity in terms of project management, on the one hand, with portfolio management techniques on the other.

PHARMACEUTICAL GROUP DYNAMICS AND THE FORMALIZATION OF PROJECT PORTFOLIO MANAGEMENT

Why are we witnessing today such a spectacular development in project portfolio management tools in the R&D field, especially in the pharmaceutical industry? The arguments repeatedly based on the growing importance of innovation in corporate competitive strategies, plus the assertion that such instruments are effective, seem to us to be worthy of closer examination.

Firstly, such tools cannot be truly described as "new", since virtually all of them stem from concepts based on the theory of decision-making in contexts of uncertainty [START_REF] Luce | Games and Decisions[END_REF][START_REF] Savage | The Foundations of Statistics[END_REF] and the financial analysis of investment, concepts which were developed in the 1960s and 1970s, although the most recent developments relating to inclusion of information value are more recent than this [START_REF] Mitchell | Managing R&D as a strategic option[END_REF][START_REF] Kester | An option approach to corporate finance[END_REF].

Secondly, the assertion that it is more efficient to guide R&D decisions in a more instrumentalized manner has been the subject of frequent debate. Authors of classic work on this even maintain that it is the specific features of R&D management by the absence of formalized control instruments for this activity [START_REF] Burns | The Management of Innovation[END_REF][START_REF] Mintzberg | Structure et dynamiques des organisations[END_REF]. Recent research on corporate management in high-technology industries [START_REF] Cusumano | Microsoft Secret[END_REF][START_REF] Brown | Competing on the Edge : Strategy as Structured Chaos[END_REF] revise this view, demonstrating the role played by "semi-structured" control mechanisms and relatively formalized management systems in scientific and technological contexts characterized by high levels of uncertainty and rapid development, such as microelectronics, information technology and biotechnology.

The experience of the company studied here can provide empirical data to enable us to understand the current effervescent state of the field.

After forty-nine years as a subsidiary of Air Liquide, which withdrew from this sector, in 1991 Lipha was absorbed into the German group Merck, whose sales volume in the pharmaceutical industry now stands at almost FRF 15 billion. In 1998, Lipha sales figure was FRF 5.2 billion, approximately 35% of which was generated in France, 46% being earned in the United States. With Glucophage Lipha is currently in first place worldwide for the treatment of diabetes type 2.

The current interest in project portfolio management tools can be seen as the result of two driving forces. The first is internal to R&D and relates to the dynamic of the research conducted by this firm. The second is an obligation to increase visibility, and is linked to the group's growth dynamic.

Research strategy dynamics: a philosophy based on internal portfolio management

The R&D conducted by this company is intended to discover new chemical compounds (NCE) or biological substances (NBE) or new formulas, the aim being final development of therapeutic drugs.

The origin of the present situation is to found in the 1990s. At that time, the R&D portfolio was growing in all directions and there was a mismatch between the scientific outlook of the researchers and the commercial outlook of marketing development, this being a fairly typical situation at that time. The new director of research began a strategic refocusing of the company's R&D portfolio. The strategic decision made was to channel research toward precise therapeutic goals for which Lipha already had substantial scientific, technological and commercial expertise and a strong reputation (diabetes). This new policy was reflected in a concentration of the portfolio, with projects diverging from the strategy being either abandoned or transferred. It also led to the implementation to new methodologies directed at greatly enhancing the processes of exploration and development of the newly focused portfolio:

Acquisition of technologies enabling a widening and accelerating of the exploration of the products tested (combinatory chemistry, high throughput screening), High volume test methods, Implementation of a more professional project management system: creation of project manager posts from 1982, creation of an internal "school of project management" in order to systematize the acquisition of project management techniques. An internal consultant with the task of providing this training and methodological backup for the implementation of the methods as appointed in 1992. This section hired a second internal consultant in 1995. The policy was backed up with a substantial research and development budget: approximately FRF 700 million in 1998. In 1999, the R&D budget amounted to FRF 760 million.

When in 1997 we were approached to undertake joint research on the management of project portfolios, Lipha had already been using such tools for four years. This request for research came at a time when the issue of portfolio management, which was a long-standing one as we have seen, was becoming critical once again due to the very success of the policy first implemented 5 years before. Initially, the refocusing of research led to a fall in the number of the company's projects, now that strategy is producing a flow of potentially valuable candidate drugs which is beginning to overtake the human and financial resources of R&D. The need for sophisticated instrumentation is all the greater since the "exotic" projects which can be easily eliminated have already been removed from the initial targeting configuration, and all the project which remain are, by definition "correctly oriented strategically". Should the overall R&D budget be increased? How should projects be selected in order to spread scarce resources correctly? Among other questions.

Note that the scope of PPM is limited to the development phases of the projects. The initial fuzzy discovery R&D was not concerned because of the poor reliability of the data to be computed.

The dynamics of the integration of a world-class pharmaceuticals group: a philosophy based on external control of R&D

The other reason for the institution of this research relates to the dynamics of the structure of the Merck group. This does not stem from a philosophy of internal project management within a portfolio but from a requirement of visibility and external control of the R&D activity with respect to the shareholders of the Merck group. Indeed, 1997 was a milestone for the control of R&D in the group.

Since the early 1990s, the group has been organized in a matrix-type structure by therapeutic domains (Business Area Teams, or BATs) and by geographical zones. In that structure, Lipha had a dual responsibility: geographical responsibility for France (for the marketing of the Merck and Lipha range) and worldwide responsibility for the diabetes BAT, which is its core therapeutic speciality. Within that context, since its absorption into the Merck group in 1991, research decisions have been devolved to the Lipha, the R&D budget being 14.5% of the sales volume for the Lipha subsidiary. The commercial success of the subsidiary over this period had enabled the financial autonomy of R&D to be preserved up until the present time.

In 1997, the group began a new phase in its worldwide integration by initiating study of the management of R&D project portfolios. The aim was to compare existing approaches applied in the various companies in order to arrive in due course at common tools for the standardized assessment of projects in the various BATs.

On the one hand such standardization seems on the face of it to be desirable: some parts of the group are at a very advanced stage on this issue, others are less so. This can be a way forward for the swift capitalization of acquired expertise. Similarly, as in all world-class corporate groups whose growth has been based external acquisition, co-ordination and reporting become, due to the inconsistent nature of the various systems, extremely cumbersome and tedious. Project managers are asked on numerous occasions to provide input for databases at various levels; inconsistencies are frequent since assumptions as to figures and quantities are not the same in the various companies, and so on. Simplification and improvement of the system at an overall level would therefore seem to entail the implementation of uniform approaches.

On the other hand, such standardization can be seen to bring a risk of undermining the decentralization rule which has worked well until now. Might the current study be the first step toward the construction of a vast, centralized portfolio of disparate projects, which would contradict, on the face of it, the logic of strategic focusing which has been implemented since the early 1990s, and which, when all is said and done, has proved profitable 4 ? It seemed to senior management at Lipha that the building of internal trust within the group required mutual exchange and comprehension of the techniques used to manage project portfolios. All that remained was to agree on a common approach: should the existing method be applied universally? Should improvements be suggested? Should other tools be chosen? How did this approach compare with that of other BATs in the group? What distortions might arise from the general application of unsuitable instrumentation? The stakes were high for the company given past investment in the definition and implementation of its system.

AN ANALYTICAL PATTERN FOR THE EVALUATION OF PROJECT PORTFOLIO INSTRUMENTS IN COMPLEX ORGANIZATIONS

The above analysis shows how diverse are the issues involved in the choice of project portfolio management tools if one considered them not in the context of an individual rational decision model but as one component in a complex regulatory system for an entire organization. In order to examine project portfolio management tools from this point of view, we used the analytical grid shown below, which is based on the work of the Management science centre at the École des Mines in Paris and the Management research centre of the École Polytechnique [START_REF] Berry | Une technologie invisible[END_REF][START_REF] Moisdon | Du mode d'existence des outils de gestion[END_REF][START_REF] Centlivre-Petit | Outils de pilotage économique et dynamique d'apprentissage local dans une structure multidivisionnelle Thèse de l[END_REF]. This grid uses five explicit variables to account for the effects of a set of management instruments within an organization:

The management situation (or the organizational context) in which the instrument is implemented. Management instruments are tools handled by groups. The task is to provide instruments for cooperation on a given topic and in a given context. A precise description of that context and the goal of the cooperation is therefore an essential starting point for an analysis of the management tool. With what degree of accuracy? And so on). At this level, the notion of the "management of project portfolios" relates to a wide variety of situations and participants [1, 5]: budget options, project monitoring, shareholder information, etc. According to the precise situation, the players will not always have the same perception or raise the same issues with respect to the phenomenon under study. It can be easily imagined that a given instrument suited to a given player in a given situation will not be suited to others in different situations. This angle led us to define the various situations and their impact on the suitability of the mode of representation.

The "management philosophy" underlying the tool. What reasoning does the tool make it possible to model? Are the concepts it implements relevant to the utilization expected by the player concerned? The focus here is on the way in which notions such as risk, or the value of a project to the company can be formalized, for example. The level involved here is that of the economic concept and decision theory.

The "technical substrate" of the tool. The focus here is on the internal operation of the "management machine". What software and computer architecture does it use? Is it data-intensive and are the date easy to acquire? Are they easy to update? Is the tool easy to handle or is it cumbersome? And so on. The ergonomics of the representation provided. At the opposite end of the spectrum, as it were, from the high level of abstraction of concepts and theories, the characteristics of the mode of representation also have a part to play: Does the tool provide a representation which is "expressive"? Is it a good vector for communication and exchange of views on the topic under discussion? For example, a matrix with four boxes in which projects are "divided up" has qualities which a table of figures does not. Again, a logarithmic axis scale will reduce the visual impact of differences and lead to debate centred on orders of magnitude, it is difficult for a "bubble diagram" to depict a portfolio with more than thirty projects without becoming unreadable, and so on.

UTILIZATION SITUATIONS FOR PROJECT PORTFOLIO MANAGEMENT TOOLS AND THE MODE OF REPRESENTATION OF THE PORTFOLIO

We begin by describing the situation for utilization of the instruments for portfolio management by those involved. The situations requiring the use of project portfolio management tools mobilize a very diverse range of players: project managers, those responsible for shared R&D resources, central management departments allocating resources, shareholders and financial experts seeking to ensure the visibility of parameters of determining importance for the future performance of the company, external scientific or administrative authorities. We summarize in the diagram below this entire set of players implementing representations of the portfolio of projects. This model, which is certainly highly simplified, is nevertheless sufficient to give an account of the two philosophies described above (control internal to R&D, external visibility).

We describe below in greater detail the relationships between these players on the basis of the goals underlying the respective situations. Four contexts have been identified as important:

Planning goals, in which the need is to define overall objectives and to plan resources for commitment in a strategic [START_REF] Ponssard | Gérer la R&D comme un défit : quel rôle pour la planification ?[END_REF] or budgetary context. A decision goal, relating to individual projects (in project reviews or R&D committees) and product acquisitions under license, taking into account the overall logic of the portfolio.

An information or control goal, in which the need is to communicate an image of the current status of the R&D activity.

A learning goal (typically training sessions with project managers, or periodic status updates on R&D activity).

Figure 1: Players and practical contexts involved in the management of project portfolios

The performance provided by instruments in a given situation must initially be analyzed in terms of the fit with the cognitive bias of the participants: a representation which will seem simplistic to some will seem complex and obscure to others. For instance, an internal management tool which involves bringing together researchers and their managers to exchange information on a weekly basis on scientific and strategic issues is certainly not well suited to the briefing of shareholders.

It must also be seen in terms of " creation of contrasts" in relation to the problem raised by the participants. This concept means that the tool must both illuminate usefully the issue to be dealt with but also at the same time create areas of opacity s to the other ways of comprehending the reality considered. Otherwise the image will be complex, blurred and the tool will lose its credibility even if it is offering a more "realistic" vision (because it is less simplified) of the phenomena at issue. Let us take a few examples.

Negotiation of R&D strategy with the group

At this level, the focus is on the overall characteristics of the portfolio: can its level of risk be assessed? How can it contribute to the overall financial balance of the group? Can investment needs linked to it be funded? Representations which involve the concept of the expectation and probability of gain are relevant here. For example, the " bubble diagram " shown in figure 2 below is well suited to this situation : it reveals the portfolio trade-off between valuable and unrisky projects (" pearls " in the classical typology), valuable but risky (" oysters "), incremental changes (" bread and butter ") and the most problematic " white elephants ".

Note that Lipha's instrument innovates by representing the portfolio's dynamics : arrows reveal the expected situation of each project after the R&D budget allocation of the year and each project is characterised by its expected commercial launching date. Note that this classical four-boxes representation is obtained through the elimination of some characteristics of the projects. For example, projects in the bubble diagram are considered as independant, an hypothesis that is certainly not realistic. Some bubbles correspond to " back-up " strategies which explore the same marketing target following various scientific tracks, in order to minimize global risk. Then, the success of one project inside the family will result in stopping the others.

Diagrammeˆbulles de LIPHA

At the level of ergonomics, we see also that this instrument is successful in representing five characteristics of projects (risk, expected value, remaining investment, expected progression, commercial launch). This probably reaches a limit in complexity. The graphic codes were largely discussed in the research task-force : for example, people criticized the representation under the charge that the size of the bubble is spontaneously taken as a positive criteria (a large bubble looks like a good project), when it is in fact a negative attribute (a large bubble means heavy R&D costs).

Budget options within the project portfolio

This instrument is positioned within a type 2 relational structure. The relevant variables at this level are not exactly the same as in the previous situation. The focus for example will not be on the total required investment to bring a product to market but only R&D expenditure incurred in the budget year considered. Similarly the notion of "expectation of gain" which is relevant to the representation of the performance of a project population, becomes abstract in the context of debate between a project manager and his managers: for the former, the project can either fail or succeed. The result he will see will never be a linear combination of both these outcomes. The group has, given this, given priority to the representation of the project not in terms of expectation of gain but in those of gain in the event of success. Lastly, the layout of the "bubble diagram" is ill suited to quick simulations of different allocations of scarce resources to projects. On the contrary, the representation given in figure 4, which orders projects by decreasing NPV/I, showing a cumulative total of expenditure on the X-axis and profits on the Y-axis, is very well matched to this exercise. Note that the assumptions as to the independence of variables on which the above representation is based are also to be found here. Differences in risk associated with projects are no longer pictured, and the notion of overall portfolio balance has been lost.

The preceding analyses therefore confirm and flesh out the observations made on the advantages of using more than one instrument, choosing them to suit the situations covered by project portfolio management. The evaluation of simulations of the various tools has also made it possible to highlight whether given approaches are a good fit, or irrelevant, for the specific features of the research strategy in the company's research and organization. The "management philosophies" underlying some tools are too far out of step with the realities and the strategies they are supposed to picture and to support. The "contrast" effect they create can in this case become a vector for major distortion. Hence the strong tensions frequently to be observed in industrial groups implementing this kind of management instrumentation. We analyze in the section which follows the fit between tools and the specific features of the research strategy of the firm considered here, and in the final section, the match with the specific features of its structure and its past project-related history.

R&D STRATEGY AND THE LOGIC UNDERLYING PROJECT PORTFOLIO MANAGEMENT TOOLS

Lipha's research strategy is characterized by three major features. As we saw in the first section of this paper, Lipha has chosen to focus its research on therapeutic targets. In addition, as in most large pharmaceutical groups, research strategy has been locked on to the discovery of "block busters" on the basis of economics which are totally different from those found in other sectors such as manufacturing. Finally, one of the fundamental trends in pharmaceutical R&D is the development of on-going project trades between firms: for example, the co-development of compounds or the sale and purchase of candidate drugs. How can portfolio management tools integrate such sector-specific parameters?

Figure 4: Diagram for changing probable numbers of projects in each phase

On the other side, one drawback of this representation is that it gives a rather unstable image of the portfolio: although it reflects reality of R&D situations, exhibiting erratic performances may damage trust among other professionals who are used to more stable environments.

Taking account of project trade strategies and the notion of the "porous funnel" in R&D

In the conventional literature, the project development space, often called the "R&D funnel" has just one possible business outcome: marketing of a new product when approved by the health authorities. Projects enter the initial development phases and progress gradually through the funnel until they are brought to market or fall by the wayside for various reasons. By introducing the possibility of "trading", buying or selling projects (wholly or partly) at different stages in their development, the relevant business model is modified to take into account the management of the R&D portfolio. This takes us from the conventional R&D "funnel" to one which we might describe as a "porous funnel", leaving room for trading with other firms as shown in the diagram below.

The project funnel: the track is followed through to marketing or the project is killed.

?

The "porous" funnel: value can be gained from projects other than by bringing them to market. At each stage a project can be halted, pursued or implemented.

? ? ?

Figure 5: The R&D process: from the conventional funnel metaphor to the "porous" funnel

The decisional framework for R&D management in porous funnel mode is significantly different from that associated with the conventional funnel, as table 1 below shows:

Table 1: comparison of the decisional frameworks of "conventional funnel" R&D and "porous funnel" R&D

Conventional funnel situation Porous funnel situation

Resource allocation is based on sharing out a fixed overall budget (zero-sum game between projects)

=/=

The overall budget varies according to the decisions reached (nonzero-sum game)

Projects are evaluated according to defined corporate norms =/= Each project has an inter-firm trade value which may differ from its value for the originating company Gaining value from the project is based on the expertise of downstream sales personnel =/= Gaining value from the project is an on-going activity from the outset and is based on R&D expertise Conventional representations do not make it possible to picture the decisional framework associated with the "porous funnel" configuration. For example, following the chosen strategy, the same project may be positioned at two very different locations in a conventional "bubble diagram", as is shown in the figure 6 At bottom right, the representation picturing internal development implies high risk and investment, while promising large profits in the event of success. At top left is the assessment of the same project if value is gained from it during development by means of a trade with another pharmaceutical firm: the risk and the investment are smaller (because return on the project is immediate and simultaneous with the trade, and the other firm will complete the development), but the profit in the event of success is obviously lower (sale price plus royalties on any future sales for example).

GROUP CONTROL AND PROJECT PORTFOLIO MANAGEMENT TOOLS

Project portfolio management cannot be analyzed without taking into account the organizational principles applied by the company to its R&D. The choices which are made will back up or, conversely, undermine major organizational issues such as the definition of the job profile of the project manager, the centralized or decentralized nature of R&D decisions, or the mechanisms in place for organizational learning.

Bringing research and market closer together; decentralizing R&D and the system for project portfolio management

The last two decades have seen a continuing trend toward a closer relationship between R&D and market, a rapprochement which is encouraged by the increasing decentralization of research resources in organizational structures consistent with chosen strategic goals (SBUs or BATs by product, by market, by technology, etc.). R&D approaches then develop within the decentralized organization to fit local strategy. As we saw in the first section of this paper, certain approaches to portfolio management may place local consistency of R&D choices in jeopardy on the grounds of centralized optimization, which, as we have seen in the previous period, is not synonymous with efficiency.

Maturity of project management and portfolio management tools

The concept of the post of project manager covers a wide diversity of actual practice ranging from straightforward, informal co-ordination conducted very much on a part-time basis (the "lightweight project manager") to "heavyweight project managers" [START_REF] Clark | Organizing and leading 'heavyweight' development teams[END_REF] who enjoy very high levels of responsibility, autonomy and resources. Recent history points in the direction of greater professionalism and a policy of strengthening of such corporate roles [START_REF] Midler | L'auto qui n'existait pas[END_REF][START_REF] Midler | Projectification' of the Firm : the Renault Case[END_REF]. The ways in which the project portfolio management approach interfaces with the dynamic driving development of the roles of project managers is manifestly of great importance. This is particularly true when the company has achieved a degree of maturity in terms of project manager profile. Jolivet & Navarre [START_REF] Jolivet | Grands projets, auto-organisation, métarègles : vers de nouvelles formes de management de grands projets[END_REF] have developed, starting out from the principle of subsidiarity, the notion of "metarules", a concept allowing the contradiction between project autonomy and management of overall group coherence to be surmounted. The only issues which are referred to portfolio management are those which cannot be dealt with at the level of the individual project. It may easily be imagined that certain tools, which "feed back" to central committees a plethora of technical and commercial data, are totally out of step with the principle of the empowerment of project managers.

Tools that drive the learning process

The "sales argument" most often used to promote the adoption of new project portfolio management tools focuses on the decisional process: the tool is profitable, the argument runs, because better decisions are taken in the area of strategy through the competitive advantage created and the costs arising. However, numerous research publications [START_REF] Moisdon | Du mode d'existence des outils de gestion[END_REF][START_REF]Des savoirs en action[END_REF][START_REF] Nonaka | A Dynamic Theory of Organizational Knowledge Creation[END_REF][START_REF]Project as Arenas for Renewal and Lezrning Processes[END_REF] tend to concur that the contribution of management tools to organizations relates more to their ability to structure the collective learning process over the medium term than to assistance they provide for decision-making in the short term.

The project portfolio management field is typical in this respect. On the one hand, decisions on projects are sufficiently rare, singular and complex for the "efficiency gain" obtained through greater use of tools and automation to be unspectacular in many cases. Furthermore, most case studies highlight the importance of the decisional process in which the tool is applied, the debate between experts on which data quality is based, and so on. On the other hand, organizational learning on the management of R&D projects is a process which is particularly difficult to put in place, the reasons being, among others, the length of time separating decisions from their perceived results, the multiplicity of points of view integrated into projects, the character of project histories themselves, in principle highly particular and consequently difficult to extrapolate, and the chaotic manner in which projects unfold. The shaping and instrumentation of project portfolio management can in this case offer a particularly useful lever for the promotion of the learning process within the organization. It can ensure the required traceability for experiential feedback. It encourages the minimum uniformity of approach essential to inter-project comparisons. It reveals the disparity and interdependence of the points of view to be taken into account. It formalizes ideas which are ambiguous, subjective and abstract, such as the notion of "risk" or "value", and it can thus improve internal debate (where it does not seek to replace it).

All methods are not equally effective with respect to the collective learning process. An example is provided by tools based on scoring, which evaluate projects by aggregating, using agreed weightings, criteria which are both qualitative and quantitative (such as the degree of innovation of a project, its competitive value, etc.). This kind of logic, which is often appreciated for its virtues of simplicity within a logic of rapid decision-making (an overall grading is obtained for each project) and "objectivity" (because the base data used in the computation is dependent to only a limited extent on expert subjectivity) has virtually no advantages for learning. Conversely, approaches based on "bubble diagrams", such as that implemented in the case studied here, encourage debate at a fundamental level between the various experts (between, for example, biologists, epidemiologists and marketing personnel with the aim of arriving at sales forecasts related to the properties of the drug concerned) and forces quantitative data to be matched up with the opinions of the experts. Such comparison and contrast between subjective outlooks, added to their periodic calibration and traceability, can build powerful forces to drive the corporate learning process.

CONCLUSION: THE ORGANIZATIONAL ISSUES AT STAKE IN DECISIONS ON PROJECT PORTFOLIO MANAGEMENT TOOLS

"Management fashion" phenomena [START_REF] Midler | Logique de la mode managériale[END_REF], added to the mimetic strategies of companies [START_REF] Dumez | Savoirs et décisions : réflexions sur le mimétisme stratégique[END_REF], tend to disseminate management innovation rapidly throughout a management world which is now planet-wide. Faced with these different philosophies, one of the problems of management is to develop an ability to select and to contextualize "products" which are very highly standardized, to take into account the specific features of the company's business, organization and history. The current fad for sophisticated instrument sets for the management of project portfolios typically stems from this logic. Such tools are frequently a source of major tension within "global" industrial groups. Leaving aside facile invocation of the notion of "resistance to change", it has been possible to demonstrate that the positions adopted reflect differences, frequently profound, as to strategies for research and the vision of project management and global control of such groups. According to the tool chosen, the vision favoured may be more or less centralized, involve exploration of "technology push" or "market pull", "lightweight" or "heavyweight" project management. However, the choice of a project portfolio management system is a decision which is well-nigh irreversible, given the high level of investment in time and resources needed to agree and put in place shared concepts and tools in international, diversified organizations. Hence the importance of the process of experimentation and implementation of such systems, and the time and expertise which must be deployed. There is here major potential scope for fruitful co-operative endeavours and experimentation between management science researchers and companies. The research currently under way is a move in this direction. * * *

NOTES

[1] Sharpe, P. & Keelin, T., 1998, " How Smithkline Beecham makes better Resource-Allocation Decisions ", Harvard Business Review, march-april.

[2] Gareis, 1990, HandBook of Management by Project, Manz.

  Figure 2: Lipha bubble diagram

Figure 3 :

 3 Figure 3: SKB project prioritization tool Source: Sharpe, P., Keeling, T. (1998)

Figure 6 :

 6 Figure 6: The representation of various scenarios associated with the same project in a "bubble diagram" representation of conventional type

With respect to 1997's results, Lipha was assessed as the most commercially and financially efficient French pharmaceutical company by the business journal "Les Echos" and as the most innovative of all French pharmaceutical companies by the magazine La tribune de l'Expansion.

Exploration driven by therapeutic goals or targeted on defined technologies

The focusing of Lipha R&D on defined targets is reflected in an initial screening of projects immediately on their entry into the development phase. The projects which survive are, by definition, "correctly targeted". In this context, the multicriteria strategic evaluation tools (scoring) used to ensure such correct targeting subsequently cease to be of use for portfolio comparison and control.

The situation changes when the exploration strategy is targeted on a defined technology (for example, exploration of the properties of a range of substances or a genome). In this context, periodic comparison of the strategic positioning of projects becomes important. Scoring, a method of multicriteria analysis enabling qualitative and quantitative criteria to be aggregated, is particularly well suited to this problem.

R&D targeted on "block busters"

The economics of the pharmaceutical industry is shaped fundamentally by patent-based protection of new drugs (NCE = New Chemical Entity), which guarantees income from a monopoly over a defined period. Once the patent has expired, generic drugs make inroads into the original product and margins collapse. This situation leads to phenomena related to concentration of profits on a few flagship products (the "block busters") which fund numerous failures. As an example, in 1998, Lipha's own flagship product, Glucophage, generated worldwide sales of about USD one billion. In this context, commitment to a given R&D thrust is expressed as a minimum frequency of discovery of "block busters" -one every nine years for example.

Which instruments are consistent with the management of a policy embodying this form of commitment? What we find here is a discrete phenomenon (projects are scarce), made up of non-linear events (two molecules chemically and biologically analogous at the outset may end up totally differently) and evidencing a learning track dynamic (projects are not independent).

Non-probabilistic reasoning is obviously ill-suited to managing this type of phenomenon. Conventional approaches based on taking uncertainty into account by appeals to expectation (hoped-for gain and probability of occurrence) are also highly unsatisfactory when a company is faced with very major gains associated with low levels of probability and low numbers of occurrences [START_REF]For example[END_REF]. Thus the representation described above as well suited to dealing with overall budget constraints, based on a logic of incremental, additive investment, pictures this phenomenon poorly. By seeking to concentrate on investments whose hoped-for marginal gains are highest, there is a risk of ending up with dramatically low long-term probabilities of project outcomes.

The preference will therefore be for representations based on counting of probable flows of products at different stages, setting targets of the type "throughput of at least two active compounds to the development phase every year", as can be seen in the figure below.


Pierre-Jean Benghozi
email: benghozi@poly.polytechnique.fr

Walter Santagata
email: walter.santagata@unito.it

Market Piracy in the Design-based Industry: Economics and Policy Regulation

Introduction

Market piracy in the design-based industry is an expanding worldwide phenomenon (Grossman and Shapiro, 1988a,b;[START_REF] Chaudhry | An Assessment of the impact of Counterfeiting in International Markets: The Piracy Paradox Persits[END_REF]Schultz II and Saprito, 1996). It deserves a great deal of attention both because of its impressive international dimension [START_REF] Verma | TRIPS, Development and Transfer of Technology[END_REF] and its intrinsic illegality, ambiguity and powerfull potential links with criminal organizations [START_REF] Andreano | The Economics of Crime[END_REF][START_REF] Fiorentini | The Economics of Organized Crime[END_REF]. The aim of this paper is to develop theoretical arguments about economic agents' behavior and to shed some light on the main regulatory issues of illegal markets.

At a first sight the room for rational incentives to commercial piracy is self-evident. On one hand, an original backpack by the Italian stylist Prada costs, for instance, $ 510 in Manhattan, New York, and a bootleg copy costs $ 70 in Rome, just in front of Castel Sant'Angelo. On the other hand, the number of units sold can be impressive: as an example Louis Vuitton sells 3.5 millions units per year. Market piracy is usually noticed in sectors such as luxury goods or fashion, but piracy can also be observed in more traditional sectors such as car manufacturers, "bureautic" industry, cooking utensils, aircraft-parts and so on.

The property rights economics is the common framework to analyse intellectual property and trademarks infringements [START_REF] Landes | Trademark Law: An Economic Perspective[END_REF][START_REF] David | Intellectual Property and the Panda's Thumb: Patents, Copyrights, and Trade Secrets in Economic Theory and History[END_REF]. Design-based goods that basically rely, like art goods [START_REF] Santagata | Propriété intellectuelle, biens culturels et connaissance non cumulative in "Réseaux" n°88/89[END_REF][START_REF] Barrère | Defining Art. FRom the Brancusi Trial to the Economics of Artistic Semiotic Goods[END_REF], on both high symbolic value and intellectual property, reveal a mixed public good nature whose legal protection implies positive transaction costs.

Intellectual property is a non excludable good and the capability of capturing its yields at a very low cost gives rise to a strong economic incentive to counterfeiting. As a consequence, design-based industry is structurally confronted to forgery and has to develop legal systems and private practices to enforce excludability. Nevertheless, to emphasize at the very beginning of this work one of the many ambiguities of the illegal markets, it should be noted that unfair competition, in the form of illegal copy of a protected design, or, at some very small extent, the development of an illegal market for a single product could be appreciated by the original producer as far as these practices are an indirect way to foster his/her reputation.

The illegal market resulting from pirated products of the design-based industry is the core object of this paper. Incentives to commercial piracy are discussed in the first part of the paper. In the second part are presented the main characteristics of the illegal organisations dealing with forgery. The third part is devoted to enforcement and policy regulation issues.

Design and piracy

Industrial design is a strategic device for improving the quality of a great many products and a way of fascinating consumers through its symbolic content. Moreover should be also acknowledged the actual role of design in lowering production costs in many industries. This is the reason why design is not only a trait of luxury goods: it applies as well to a large number of final and intermediate goods. According to the WIPO (World International Property Organisation) : "It is estimated that the number of registrations (and renewals) of industrial designs effected worldwide in 1995 was about 235,000; this number does not include the 5,613 design registrations or renewals under the Hague Agreement. About 1.35 million industrial design registrations were in force at the end of that year".

Given the spectacular growth of the design-based products, commercial piracy has today a large base.

French statistics indicate that counterfeiting is taking place in every sectors : the average percentage of firms facing forgery is 19%, it raises to 65% in luxury goods. Experts estimate the size of illegal commerce at $6 billion a year [START_REF] Tagliabue | Fakes blot a Nation's good names[END_REF] The design sector is wide and highly differentiated. Among the objects more largely counterfeited can be found: wathches, by Cartier, Rolex, Bulgari; handbags, by Prada, Gucci, Louis Vuitton, Chanel; shoes, by Timberland; sunglasses, by Ray Ban, Armani; blue jeans and prêt-ˆ-porter, by Versace, Armani, Lacoste; leather goods; car spare parts; inks and cartridges for printers. A museum of the forgery, the "Musée de la Contrefaçon", has even been founded in Paris, rue de la Faisanderie...

In this paper, we shall adopt a broad definition of design based products, including fashion style products such as Armani's, for instance, and less notorious productions, such as industrial spare parts whose market could be quite restricted. Yet, both style and industrial design are facing similar conterfeiting and piracy.

We shall argue that the main reason is that in both cases, piracy lies on the same economic basis.

Piracy and economic incentives

The reasons why commodities of copyright-based industry and design-based industry are produced and exchanged in illegal markets can be traced in the special economic nature affecting this class of goods.

Given that piracy or counterfeiting can be defined as the unauthorized use of another's production, invention, or conception, our focus is on the infringement of industrial property rights (inventions, marks, industrial design) and on some cases of unfair competition (infringement of trade secrets, unfair practices) [START_REF] Huntley | Unfair Competition, Consumer Deception, and Brand Copying: An Economic Perspective[END_REF]Grossman and Shapiro, 1988a,b).

Counterfeiting design-based product

Counterfeiting is affecting a wide range of products and industries, but it is possible, however, to characterize and distinguish several specific forms of piracy. Each one corresponds to a different structure of the illegal market and a different strategy of the economic agents. These forms in turn affect the various aspects of the value added by the intellectual and immaterial contribution of the original producer:

it can be the symbolic value, the immaterial value (trademark and mark services), the technical and functional quality of the produced good (design, innovation), or the production and distribution capacity (tacit knowledge, monopolistic distribution network). More precisely, different components of intellectual property can be counterfeited.

1. The mark. Here the pirate captures reputation and mark services, copying the trademark [START_REF] Landes | Trademark Law: An Economic Perspective[END_REF]. Moreover the more licenses are traded by the original owner, the greater is the probability that the mark be copied. In some cases, such a practice can be applied to goods not actually produced by the original manufacturer. This happens, for instance, when the pirate puts counterfeited logos or trademarks (Lacoste crocodile e.g.) on products or goods which are not actually produced by the original manufacturer (a pirate may produce Lacoste ties or handkerchief which do not exist).

2. The design. Piracy consists in copying and using the idea, the technical conception and the original form of a product : it can be slavish copy, free adaptation or simple use of some elements or components of the original. In general, such products counterfeit simultaneously the mark and the design. Yet, in some cases, illegal copies of the Prada and Vuitton bags are inspired by the original form and material but are not always strictly counterfeiting the trademark. Such cases are frequent in industrial goods, when only the design is counterfeited. Moreover, pirates may improve fonctions and performances of pirated goods through innovations; it has been noticed that sometimes consumers ask Vuitton for introducing innovations found in pirated sacks.

3. Production infrastructure -In some situations, counterfactors are actual subcontrators of the original producers, using illegally original production equipment, models and infrastructure. In such a case, pirated goods may share the very same quality of the original ones. This is the case when subcontractors overproduce in order to sell part of the production on their own. Sport or textile equipment contractors are frequently facing such situations 4. Standards and interoperabillity -In other cases, (spare parts in car or aircgraft industry, ink cartridges for printers), the core of the copying process do not rely on a form or a particular design but mainly on the interoperability capacity of the product . In this situation, pirates avoid patents, illegally using proprietary standards developed by the original producer in order to protect their markets and their innovations. Such standards are very important when producer uses them to bundle goods together, transferring revenues from one product to another one, overpricing some components once the customer is locked in: this is the strategy for spare parts in general. The razor manufacturers give, for instance, razors for free and selling their blades at a higher price.

5.

Product. In certain situations, consumers and users themselves can develop unfair use or create themselves illegal counterfeiting (with potentially strong effects in case of mass production). This can happen when the producers have artificially segmented different submarkets discriminating quality and price according to different consumer's willingness to pay (business or professional use vs. private use for instance). As an example: software copies, abusive licences.

6. Distribution network. Finally, piracy can be originated in the distribution and retailers network. Sellers and retailers could use original trademarks and original products to tease and attract consumers, and to sell, then, more lucrative substitutes bypassing exclusivity contracts or trading illegal copies.

Entrepreneur's economic incentives to piracy.

As far as the economic nature of the goods is concerned, it should be firstly noted that the goods of copyright-based industry and design-based industry are caracterised by a high degree of publicness. In fact they could be defined as mixed public goods, in the sense that their intellectual content shares the characters of non exclusion and non rivalry of a pure public good, while the medium (material support)

necessary to reveal and manifest information (CD, canvass, paper, material, etc.) is privately owned and excluded from others' consumption at low transaction costs. Such a class of goods could, then, be defined by the ratio of two factors. In monetary terms, the fist one is the economic value of the support, the second one is its intellectual property component, made by scientific and technological knowledge (innovation, secret) and by aesthetic and cultural knowledge (design and marks). A functional form of the proabability of piracy characterizing this phenomenon could be defined by the following equations :

If 0 ≤ ([Ipv*Ms+L]/ Mv) ≤ α p ( i ) = 0 ( 1 ) If α ≤ ([Ipv*Ms+L]/ Mv) ≤ β p(i) = a* ([Ipv*Ms+L]/ Mv) + b (2) If β ≤ ([Ipv*Ms+L]/ Mv) p(i) = 1 (3)
where p(i) = probability of piracing a single product i In the equation we use the ratio ([Ipv*Ms+L]/ Mv) as a simple way to get an agregation of the four variables, according to our hypothesis concerning the variation of probability of piracy and the existence of tresholds.

p (i)

[Ipv*Ms+L]/ Mv P = 1 P = 0 0 ∞ β α
As a general rule it could be stated that the more the ratio raises, the more the probability of pirate practices increases, and viceversa. Moreover, we assume that treshold effects take place.

A necessary condition for the existence of piracy (p(i)>0) is that the intellectual property value be greater than zero. In fact the non rival and non excludible nature of the intellectual property creates the incentives to free ride and the basic benefits from piracy practices. If the intellectual property relating to a specific object is not protected, it is a commodity market : everybody can legally produce and sell it. Producing and selling souvenirs representing the Tour Eiffel is a free legal practice, without any copyright or design infringement.

The equations can explain that different configuration of piracy can exist and be economically interesting, according to which parameter is at stake. When monetary value of the medium (Mv) is low, the product is easy to produce and to copy and piracy increases (p(i) → 1) , on the contrary, when the value of medium is high copying is not giving any competitive advantage because pirats can hardly be more efficient than the original producer.

When intellectual property value (Ipv) is high, consumers are willing to pay for the symbolic and technological value and fakes are a great many (p(i) → 1) because pirats free ride over the intellectual property componement of the goods ; in the opposite case, there is no room for counterfeiting and the situation is similar to the one describded when medium value is high.

When the number of licensees is high, some of them can have the temptation and the opportunity to develop illegal activity (p(i) → 1) ; for the original producer, the cost of monitoring contracts is so high that it is obliged to accept systematic residual piracy. On the contrary, a low number of licenses allows the producer easy and strict control over licensees and subcontractors.

When the market size (Ms) is large there is more room for illegal products because the control over the market (and not only over the licensees as above) is difficult to perform, in particular at the international level : (p(i) → 1). On the other hand, small markets are often niche markets which do not incentivate pirats : probability of detection is high as control over small markets is easy, sanctions have the same dimension but potential earning is very low.

As we suggested, treshold effects are taking place in each case. From the one hand, they are related to several entry barreers for the pirat (investing in production process and mastering of the technology when Mv is high or Ipv is low, creating a distribution networks when Ms is low, sanction level when L is low) : as a consequence, a treshold exists because counterfeiting is not performed until profit expectations are higher than entry costs. On the other hand, when profitability raises, piracy is always existing because of enforcement failures that make profit expectations higher than the risks of been detected and sanctionned 2 . Treshold effects deriving from residual piracy are confirmed by [START_REF] Shultz | Protecting Intellectual Property: Strategies and Recommendations to Detr Counterfeiting and Brand Piracy in Global Markets[END_REF].

The authors contend that despite enforcement mechanisms, intellectual property piracy, especially counterfeiting, will continue to be rampant in the foreseable future.

Another conclusion can be drawn from our economic definition of probability of piracing. It concerns the long term evolution of piracy on the markets. The starting point of our assumption is that for most products, the intellectual property component is continusously growing. This is firstly led by the dynamic of the technological factor, due to the incremental and systematic rationale of scientific and technical innovations. Secondly, competition on global markets lies more and more on the capability to incorporate quality into goods and to accelerate their renewal. According to our hypothesis, such evolution means that the intellectual property component (IPv) is continously growing, giving rise to an increase of probability of piracy p(i).

A taxonomy of piracy markets

A given probability of piracy is only indicating that counterfeiting takes place. Yet, we suggest that different form of piracy can be defined. We construct a first taxonomy about piracy, distinguishing between countefeiting with equal or low3 quality, and between counterfeiting or piracy and unfair competition. One should notice that gains at stake in illegal piracy (B) are greater than those in illegal piracy (A).

Legal

From the consumers' point of view there are no losses from illegal piracy (A). Losses arise to consumers when due to the lack of information about quality they buy pirated goods (B) at the price of the original ones: in this case both the consumer and the original producer are frauded.

From the producers' point of view illegal piracy and unfair competition are sources of losses : they decrease their incentives to create and entering methods to make copying more difficult increases costs.

Enforcement of exclusion, creating a monopolistic situation, is a means to charge the customer for innovation. If this is not the case, the market price should be lower because piracy drives original producers to a competitive market. To avoid such a situation the firms in the design-based industry use design as a strategy to differentiate their products. Establishing a mark contributes to segment the global market not only to capture the consumer surplus but to lock the customer in the mark, preventing him to make any equivalence between products. As an example, in some extent, the "carré de soie Hermes" market is different from the "carré Gucci" one as the consumer acquires it to get the Hermes griffe, the Hermes image, and not for the foulard utility.

Rational consumer choice of fakes

The rational consumer is incentivated to buy a pirated good up to an amount equivalent to the opportunity cost of sacrificing the original good. This sacrifice is made up of losses in terms of quality value, symbolic value and functional value.

The symbolic value of a design-based product, i, is a separable attribute of the quality Q:

Q i = f(S i , Z ij ) i= 1,2,..., i, ...N goods j= 1,2,..., j, ...M characteristics
where S is the symbolic value of i and Z are the other j standard characteristics of the quality.

A basic case will be analysed : a potential buyer should decide whether or not to buy a fake. We assume that the fake gets its symbolic dimension from the original by analogy of sense. To approach consumer behavior we may define four alternative states of the world according to his/her cognitive structure.

1. Consumers know the quality of the original product and the fake; the original trademark is signalling information and there is no deception of the consumer about quality. Consumers have perfect information on both products. Their choice rely only on the price, the quality levels of the two alternatives (let's assume that there are no substitutes) and the welfare arising from the symbolic and qualitative content of the design-based product.

The consumer will purchase the fake if the loss (L) from the differential in quality and price is lower than the gain in welfare, W(Sf), arising from the ownership of a symbolic and designed fake good. This means that the symbolic value of the fake, W(Sf), must be greater or at least equal zero. When the loss attached to the fake is greater than its symbolic value, the rational consumer does not buy the fake.

Consumers

buy the fake if

L(∆Q / ∆P) < W(S f ) (1.1)
do not buy the fake if

L(∆Q / ∆P) > W(S f ) (1.2) are indifferent if L(∆Q / ∆P) = W(S f ) (1.3)
where:

M ∆Q = Σ (Z jo -Z jf ) + (S o -S f ) j=1
is the difference between the quality of the original product and the quality of the fake; ∆P = (p o -p f ) the difference between the price of the original product and the price of the fake.

In the 1.1 case, to prevent consumer willingness to piracy, the original producer could either improve the quality or lower the price, in order to raise consumer losses. High quality is the typical strategy of the luxury goods industry. On the other hand, car manufacturers have been induced to reduce the price of the original spare parts in order to limit counterfeiting.

Consumers know

Q o , but not Q f .
Consumers buys the fake

C fs + ∆Q if L( -----------------------)<W(S f ) (2)

∆P

Where c sf are the costs for searching and testing the quality of the fake. We assume that consumers are willing to know the quality of the goods they are buying. Yet, in a competitive situation between fakes and original, differences in prices can be high and consumer is not always able to give justification to such differences.

Net benefits, are greater in (1) than in [START_REF] Beccattini | Distretti industriali e made in Italy. Le basi socioculturali del nostro sviluppo economico[END_REF]. In other words there are more incentives to buy a fake in the state 1 then in the state 2. This implies that for the illegal producer it is better to reveal quality (c sf = 0) and let the consumer know it without costs. In this case deception is not a good strategy for the illegal producer. We should raise the point that such strategy is very difficult to implement on an illegal market which are not stabilized enough to give space to confidence and reputation , and are not publicized enough to allow guarantees mechanisms.

Consumers know

Q f and not Q o 4 .
Consumers buys the fake

C so + ∆Q if L(---------------------) < W(S f ) (3)

∆P

Where c so are the costs for search and testing the quality of the original product. As it happens in the presence of experience-goods or hidden quality goods, these costs are quite high.

Consumers don't know

Q f nor Q o .
Consumers buys the fake

C fs +C so + ∆Q if L(----------------------) < W(S f ) (4)

∆P

In this case, we assume that consumers expect original are of better quality than fakes. If this is not the case, the producer of the fake is the only one interested in revealing information on the quality in order to reduce searching costs. As an example we can think of Louis Vuitton's products which are partly made of synthetic materials ; in this case, the manufacturer do not have any interest to publicize the real content of its products.

Illegal economic organization of design-based market

In the previous section, we discussed individual rational incentives of consumers and producers. In this section, we shall analyze the way in which actors interact and illegal markets organize themselves, along the production and distribution process. More precisely, we shall investigate market organisation, focusing on relationships between actors, formal and informal institutions ruling the industry.

Illegal market and economic structure

As we mentionned earlier, counterfeiter can pirate different level of value added chain of a design-based product. It can be characterized, using the traditional filière representation steming from conception to retail. According the forms of piracy, various level of the filière are confronted to fraudulent competition. As a consequence, original producers can be confronted to simultaneous forms of piracy, following different economic rules and implemented by different actors. From the enforcement point of view, the difficulty is that protecting the upstream of the business, the distribution level or facing a complete business require different strategies which can be, in some cases, contradictory. One alternative is, for instance, wether to enforce patents, private contracts and publicness or to keep secrecy and to prevent transparency. Another alternative could be to restrain distribution network through selective strictly controlled contracts or to commercialize heavily in order to get the market saturated by the original, leaving few space to piracy. A consequence of such dilemna is that fighting one form of piracy (at the production level for instance), the original producer can stimulate piracy at another level of the filière (retail).

Legal

Legal market, illegal market, criminal market

In the first part of our paper, we simply opposed the counterfeited products markets and the legal market.

In fact, such alternative is more complex as the design based sector is not homogeneous: piracy can focus on specific part of the business. More over, from the economic and sociological point of view, the very term of "illegal" and the degree of piracy should be specified as treshold effect can take place. In particular, we shall distinguish on the one hand illegality within the business (illegal copyright, labor market, unfair competition and commercial abuses, fiscal evasion) and on the other hand criminal economic activities. Mainstreams economists have paid little attention to informal economic activities.

However, the distinction between illegal (or irregular) and criminal markets is corroborated by economic litterature distinguishing tax evasion and underground economy according their impact on organization of productive activities, resource allocation and efficiency5 . By criminal market, we intend the full economic and social control of whatever part of the sector -production, distribution and commercialization -by a criminal organisation (different kinds of mafia, yakuza, camorra, bootlegging and drug connexions). This means that criminal organisations develop their activities outside the industrial sectors, developping specific delivery structures in order to bypass custom controls, using hidden factories, creating dedicated retail channels. A criminal organisation is defined as running a coercive power over a given territory, or over all the agents participating to the production and distribution structure of a given commodity (drugs, fakes, weapons). In economic terms, that means the existence of perfect (infinite) barriers to entry for whichever potential competitor. Acting as a "State within the State", the criminal organisation is able, as we will see later on, to control the ring that supplies the fake. Moreover its presence over the territory is totally pervasive, which in turn means that the criminal organisation is socially acknowleged as a local institution, whose rules are beyond the business concern and disciplinate every kind of relationship in the legal, familiar, educational and ealth sector. The criminal organisation is however tolerant, accepting that the agents of the legal and illegal activities operate on its same territory and deciding of time in time if to take their place in case of their failure or abandonment of market shares. This means that design-based industry is confronted to three different markets, using different economic rules. We shall call them as the legal market, the illegal market and the criminal market.

We shall argue that the relationships between the economic actors are structured on two different ways according to the degree of infringement of legal rules.

Filière -In the legal and illegal market, we assume that the "filière" rationale prevails. Actors are interdependent but remain autonomous. Their relationships are enforced by both formal and informal institutions. Formal institutions includes legal contracts and transparency. Informal institutions are constitued of reputation and credibility, but also defection costs born by economic actors engaged in the filière. In any case, both competition and "exit" à la Hirschman are allowed. Individual revenues are proportional to the value added and the potential monopolistic power of the agents.

Ring -In the criminal market, actors are involved in a "ring". They are dependent on one another: a circle of financiers commissions the production of a counterfeited good, a manufacturer assembles it, a network distributes the fake to the shop, and the shop sells the fake to the customer. In such rings, relationships are ruled by fear, retorsion menace and discipline (Polo, 1997) 6 . It is not possible to have recourse to legal proceedings. The exit does not exist. Working in the illegality needs neither transparence nor visibility. As a result the logic of the ring is to split its structure and to make its levels non communicating. The ring then can lose its functional character. In this context some agent may try to break the ring jumping directly from one level to another. This can happen because the degree of specialisation in the ring is very small. In the ring the economic benefits are not distributed according to the usual market and industrial rules but according to a strict hierarchy, structured and legitimated by external factors (the criminal organization hierarchy).

We shall see, later on, that such a distinction is useful to analyze policy implications of enforcement stragegy.

Policy regulation of pirated products market

Enforcing intellectual property

An economic dilemma

Market regulation in the design-based industry is first of all devoted to a classic dilemma: whether or not to protect a monopolistic privilege arising from the acknowledgement of an enforceable property right over a design or an ornament. To protect privileges could be perceived as an unfair practice, and a wide body of literature, mainly devoted to the patent law, analysed this paradoxical trade-off [START_REF] Nordhaus | Invention, Growth,and Welfare: A Theoretical Treatment of Technological Change[END_REF][START_REF] David | Intellectual Property and the Panda's Thumb: Patents, Copyrights, and Trade Secrets in Economic Theory and History[END_REF]. Two schools face one another. From one hand, the scholars of the neo-liberal-hayekian school contend that in search for protecting rights, society actually limits economic growth by under providing the positive externalities related to the innovation processes. In this sense they deny pareto efficiency to the rules of legal protection. On the other hand, neo-classical scholars argument that in the lack of protection for intellectual property society will supply a low and inefficient rate of innovation. In 6 Organized crime could be considered as either a centralized decision maker or a group of non coordinated and decentralized criminal firms, i.e. mafia acting as a cartelizing agent (Gambetta and Reuter, 1997). In both cases Polo (1997) proves that the use of discipline is optimal and sign of successful criminal organization.

this view protecting author's rights will establish the optimal incentives to creativity. If creators cannot be rewarded with returns on their investment, the national economy may be harmed and deprived of tax revenues, and incomes resulting from jobs created in the economic structure that supports protected goods, like local distributions, advertising, retail.

As far as the design-based industry is concerned a further dilemma could be approached. As stated, the design-based industry is divided into one legal market and two "counter-markets": the illegal market and the market occupied by criminal organization. The illegal market is an attempt to evade the formal constraints of the law (copyright, labor regulation, and fiscal charges), but in its essential nature it is oriented to the market rules of pure competition. The criminal organization, on the contrary, is a command economy, oriented to the coercive exploitment of subordinate agents and to the shunting of legal and social norms generating costs.These organizations are typical in drugs and cigarettes, but their activity in design-based industry are not at all marginal because they can exploit the same distribution and retail networks bypassing customs and police controls. In such cases, delivery channels, market places, street pedlars are frequently the same and are all strictly controlled by coertion.

It seems reasonable to assume that all three segments of the aggregate design-based market are communicating. This means that, given the aggregate demand, it is possible, at some amount of transaction costs, to transfer activity from one another. Consumers as well can shift from one market to another. 7 If so, analysing impact and efficiency of policy regulation, one should question what happens when the State enforces law against illegal producers.

First of all, according to the rationale of the crime economics approach the value of the sanctions should have a deterrence effect over individual criminal behavior. In this sense it could be stated that if criminal activities are much more heavily sanctioned then illegal activities, enforcement must have success in reducing criminal behavior. However in our context of struggle with criminal organisations it seems to be relevant to distinguish between pecuniary and non pecuniary sanctions [START_REF] Shavel | Criminal Law and the Optimal Use of Nonmonetary Sanctions as a Deterrent[END_REF]. As a matter of fact, if pecuniary sanctions may be a strong deterrent against the strategies of the illegal firms, that -as we suggested are within the business -the same sanctions can be ineffective against criminal organisations, that do not reveal any capital asset, nor income to be struck at by the pecuniary sanction. Then, we have 7 Shifting from one market segment to another one has been already documented in underground economy. As far as tax evasion is concerned, [START_REF] Palda | Evasive Ability and the Efficiency Cost of the Underground Economy[END_REF] suggested that inefficient firms can crowd out efficient firms: severe adverse selection can take place when least efficient firms are best tax evaders.

to turn to non pecuniary sanctions. Illegal firms are without any doubt influenced by pecuniary sanctions, on the contrary their application to criminal organisations may arise a limitation. In this case, in fact, it is not possible to determine the sanction with reference to the value of the crime. To struggle with criminal organisation, like camorra or mafia, means to have recourse to actions and policies that eliminate the adversary. To fight with criminal organisation does not allow fine tuning, thus reducing the scope for an enforcement policy.

Secondly, when it is forced to respect copyright law and fiscal norms, the illegal firm losses profits and faces increasing costs. One probable consequence is that the illegal firm is thrown out of the market. In that case, both the legal monopolistic firm or the criminal organisation can replace the illegal firm in the design-based market. Our argument is that in the competition to get the market share made available from the vanishing of the illegal firm, criminal organization can prevail over the legal firm. Empirical evidences of such evolution are given by industrialization rates in regions controled by criminal organisation. Researches made in southern Italy show that in the regions where the mafia's social capital is powerful, the industrial setting and the birth rate of firms are lower than in the other regions : such evidences give indirect arguments confirming that when criminal organisations are existing, legal firms can hardly take their place on the market [START_REF] Beccattini | Distretti industriali e made in Italy. Le basi socioculturali del nostro sviluppo economico[END_REF]Sciarrone,1998).

From the economic point of view, such competition and substitution between legal, illegal and criminal firms is supported by different reasons.

1. First of all, because of the different cost structures of the three segments of the market. As we mentioned earlier, illegal firms, and the criminal ones at a higher level, escape from paying copyright, royalties, fiscal and social charges, and from observing collective wage agreement. Furthermore, the criminal organizations may be reasonnably supposed to be more risk lovers and to enjoy a more flexible cost structure. As a consequence :

C o > C i > C c
where C o are marginal costs of original producer; C i are marginal costs of illegal firm, and C c are marginal costs of the criminal organisation.

In such a framework, when the illegal firm is facing higher costs from enforcement is eliminated, giving that C o > C c . The criminal organisation results to be more "efficient" and will capture the market share left by the illegal firm. Moreover, the enforcement process being cost increasing drives the prices of the illegal firm further up, lowering the barriers that could prevent criminal organizations to enter the illegal market.

2.

Secondly, the illegal ring has a higher degree of decisiveness due to its hierarchical structure based on the command. According to [START_REF] Burt | Structural Holes. The Social Structure of Competition[END_REF] and Block (1986), criminal organizations are particularly competent in exploiting "structural holes" of networks and markets. They strictly control information flows and develop specific capacity to coordinate agents, isolating them, optimizing decision process reducing its length and keeping intermediary monopoly power. As a consequence, it is more flexible and can react more quickly in order to carry out the steps to substitute the illegal firm.

3. The criminal organization may share two favourable characteristics. From one hand, it controls the access to the illegality. This allows the ring to rise barriers against new entries, and to rapidly create conditions for increasing the product dissemination.

4.

We can assume that such a situation is reinforced by a further reason. While the legal market communicates with the illegal one mostly through the production level (subcontractors, production knowledge...), the ring is mostly sharing the distribution level with the latter (cf. Table2.).

As a consequence, from the society point of view, renforcing enforcement could be worst if the fight against illegal firms gives raise to the strenghthening of a criminal organization. The economic and social dilemma of the enforcement is socially unacceptable because the alternatives are in any case worst than the current situation. In the one hand, a firm (the illegal one) is eliminated which is a real value, a set of entrepreneurial experiences, and of skilled labor force. In the second hand, new opportunities are offered to criminal organisations, the mafia or the yakuza's structures, completely running outside the law.

From the point of view of policy regulation [START_REF] Fiorentini | The Economics of Organized Crime[END_REF] 8 , an interesting option should be to try settling the dilemma in a dynamic way. As "the drug does not kill the patient", the regulation does not aim necessarily to the destruction and failure of the illegal producer but to the cancelling of fraudulent markets. We wonder if the illegal producer could be induced or, even better, "incentivated" to become a legal one, creating a new original good. Some evidences can be raised from actual national policies. One is related to new regulations of labour markets taking place in western Europe ; they aim to introduce new legal forms of labour contracts in order to give firms using illegal workers an opportunity to enter the legal market with analog job structure. Another examples is given by asian firms : after developping themselves through slavish copies (in the 50's and 60's for japanese one, in the 70's for corean, more recently for chinese one), they have been able to develop specific innovation capacities and compete legally on the international market. As a matter of fact, during the illegal activity the illegal firm learned a technique and appreciated the intellectual value of design and semiophoric goods. Once, he get at hand the devices for innovation, human and monetary capital, the interest in the illegal market fade, because any further the growth is necessarily limited by the invisibility of the illegal firm; the illegal firm cannot enter the stock market, it cannot hire skilled people in a competitive labor market, it cannot use ordinary financial fundings. The italian economy gives evidences of such an evolution : many illegal SMEs born in the 60's and 70's have turned legal, after growing towards their optimal size in the 80's and 90's.

This solution could be more efficient in terms of social welfare: it enlarges the legal market and prevents the criminal organisation from replacing the old illegal producer. In this case, the enforcement policy is oriented to help the firm to transform itself. The criminal organisation is always in ambush, but it does not increase its market power. Of course a new illegal firm may arise to copy both the new and the old legal firms products. But the dynamic sense of this kind of regulation suggests that it is possible to change a perverse effect into a virtuous outcome.

Discouraging passer-by consumer

As far as the shape of the demand curve for fakes and the related price elasticities are concerned, empirical evidence is until now lacking. Hovever two different hypothesis are usually put forward to analyze enforcement in the illegal markets. The first one assumes that the consumers' demand curve be concave. The second one that the demand curve be convex.

In the case of concavity [START_REF] White | Heroin Price Elasticity and Enforcement Strategies[END_REF], when prices are low, the demand is inelastic and any sort of enforcement based on a rise in costs and prices is inefficient. On the contrary if prices are high the enforcement will have some impact on the quantity consumed. People with a high reserve prices for illegal design-based products are in principle rare.

Moreover this hypothesis implies that the consumer will specialise in buying only one good, like in the case of a higly drug addicted consumer (Kopp, 1997). Other drawbacks of this hypothesis could be noticed: for instance that the decrease in prices drives to a saturation in the quantity consumed.

In the case of convexity [START_REF] Blair | Heroin Addiction and Urban Crime[END_REF], the usual way to intend consumers' preferences, at low prices the demand is elastic. This means that the enforcement based on a rise in costs and prices, is efficient. Given that consumer with low reserve prices are usally passer-by consumers, this hypothesis is consistent with a regulation policy oriented to discourage a distract, occasional passer-by consumer.

Implementing enforcement

Economic or public actors are using two different set of rules to enforce intellectual property rights.

Cultural limits of international protection

The first one are legal based, consisting in the creation, adaptation and implementation of copyright, patent rights, trade mark protection and competition regulation. They are generally well known and extensively studied by scholars in law and economics, by institutions as OMPI or through international treaties. As a consequence, public policies and regulation are usually focusing at such devices [START_REF] Chaudhry | An Assessment of the impact of Counterfeiting in International Markets: The Piracy Paradox Persits[END_REF].

Countries with the higher density of original producers are more interested to use international treaties in order to get a higher degree of protection in every country and to provide deterrent against piracy.

However, international treaties have their own limits. Firstly, the best enforcement strategies and policies are difficult to define as economic and cultural national models may be consistent with different solutions

; some products may have a special cultural significance that, from the point of view of the producer country, excludes them from international trade treaties (cf. [START_REF] Samuelson | Implication of Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) for cultural dimensions of National Copyrights Laws[END_REF].

Then, enforcement policies can provide perverse effects, worst than the starting situation. As we pointed out before brutal enforcement of the law to foster commodification and free-trade could result in an unwitting outcome, such as the strengthening of the criminal organisation or the elimination of the illegal local industry.

Thirdly, Treaties cannot be finalized nor enacted when illegal firms and consumers can get strong advantages through piracy (lower prices, low entry barriers, availability of commodities). Finally, harmonization is often prevented by cultural national specificities. Some countries protect design for manufactured goods with copyright law, others deny this protection [START_REF] Reichman | Design Protection in Domestic and Foreign Copyright Law: From the Berne Revision of 1948 to the Copyright Act of 1976[END_REF], some countries, like U.S., respect the "fair use" rule, others do not respect it. The aknowledgment of moral rights to creators is a fair and accepted practice in the European legislation, and, for instance, the United States adopted only since the 80's a comprehensive national-enforced system of artists'moral rights [START_REF] Hansmann | Authors' and artists' moral rights: a comparative legal and economic analysis[END_REF].

Private devices of protection

The second set of rules are mostly private one and structured by economic and managerial rationale. They rely on the creation and operating of control devices or on the implementation of specific production attitudes. More precisely, we can distinguish the following strategies.

1. Tracability -Products are individually identified (by a specific number), production and distribution is precisely controlled, users have to declare themselves and can be registrated in a file. We can find such strategy in software industry but also in wine business. 3. Innovation and frequent product renewal -An other way to prevent copy is to stimulate frequent renewal of goods and to to develop high innovation rates, adding regularly technical improvements in product design or fabrication process. Using such strategy, producers remain ahead pirats : imitators can only follow the market and have great difficulty to edit faked products in due time.

As an example of such strategy, we could mention electronic and Hifi, or sport shoes.

4. Rising quality level and production complexity -An other mean to protect manufacturers is to make products, components, material and fabrication process more difficult and sophisticated. In such situation, counterfacting process becomes very difficult, requiring higher knowledge and equipments and involving high costs. Yet, as we saw earlier, such strategy does not prevent illegal competition by lower quality products.

Industrial secret (vs. patent)

. There are at least two main advantages in using industrial secrets. The first one is that information about innovation has not to be revealed. The second one is that while patents have an official deadline, secrecy is for ever (let us think of Coca Cola). Such strategy could be very efficient when reverse engineering is not possible. Of course spionage and the cost of keeping the secret unrevealed can be very high.

6. Exclusive distribution -It give original producers two main advantages. Firstly, they can know and control their retailers' network very well. Doing so, they make pirated products very difficult to be sold as they need an alternative distribution network. Secondly, exclusive distribution constitute a public information and give the consumer an immediate mean to know wether or not the products are legal :

goods distributed outside the exclusive network are either illegal or stollen (cf. perfume or luxury).

7.

Structuring consortium or cartel -The main objective is to share (at the business, the national or the industry level) control means and tools in order to constitute a major economic actor and to raise a credible menace for pirats and fraudulent economic actors (being them other firms or consumers). We can find such cartels in software industry (Business Software Alliance), in luxury goods (Comité Colbert), in cultural and audiovisual sector (IIPA, MPA...), but in more traditional industries as well (inks and printers spare parts).

8. Warning strategies -A firm alerts consumers about its counterfeited products. This could be a weak strategy, because if a firm A adopts a warning startegy, consumers might choose to procure firm's B not counterfeited products.

Conclusion.

The economic analysis of supply and demand for pirated-design-based goods has revealed the great complexity surrounding agent behavior and strategies put forward by the legal, illegal and criminal firms and organizations. Our argument is that such complexity highly prevent the possibility to elaborate a consistent general theory on which enforcement policies could be grounded. We should hihglight two main reasons. Firstly, as shown, the economic structures of piracy are numerous. They provide at the same time positive and negative externalities, generate different behaviors and actual trade off for both consumers and entrepreneurs. In contrast to this complex setting, due to the illegal character of the illegal markets, too little empirical evidence exist. The second reason concerns the policy regulation structure.

What emerges from our analysis is the existence of a quasi inestricable economic dilemma that characterizes the enforcement policies. The dilemma is in sort governed by the diffuse power of the criminal organizations. We suggested that policies could incentivate illegal firm to emerge from the see of illegality ; we are aware that this difficult task is contrasted not only by economic forces, but by cultural ones as well.

* An earlier version of this paper was presented at the International Seminar, "The Economics of Copying and Counterfeiting", ICARE, December 3-4 1998, Venice. The authors are grateful to Xavier Greffe, Gianfranco Mossetto and two anonimous referees for their helpful comments.

  . Enforcement is difficult: in 1995 U.S. Customs officials seized not more than $46 million of couterfeited goods. The black market started in Asia (estimated to represent a quarter of the illegal market), but it has slowly come back to Europe and Italy. Paradoxically the Italian economy is now competing against itself on world market. France and United States are confronted to the same situation. To better appreciate the above figure, we may compare it with the neighborough illegal market developed in the copyright-based industry. According to IIPA estimates, global losses to the US -the country more struck by this kind of illegal practices -amounted during 1995 to $14 billion 1 .

  Mv = medium monetary value of the product i Ipv = intellectual property monetary value of i (incorporating in particular trademark and design) Ms = market size of product i and its close substitutes L = number of licences traded by the original manufacturer α and β = treshold values a and b = constant slope ( a = 1/[β-α], b = -α/[β-α], as the function is continuous)

Table 1 . A taxonomy of piracy markets.

 1

	Market	UnfairCompetition	Illegal Piracy (A)	Illegal Piracy (B)
	Carré de soie	Carré imitating Hermes style,	Carré de soie Hermes	Carré de soie, made of
	Hermes	either low or high quality	illegally supplied by the	artificial silk, signed
			licensee or subcontractor	Hermes
			(L>0)	(Ipv>0)
	Original product	Substitute low or high	Unauthorized equal quality	Unauthorized low quality
		quality product	fake	fake

Table 2 . Industrial structure of illegal markets

 2

	Illegal	Illegal	Illegal	Illegal	Illegal

2 .

 2 Technical lock-in -To prevent reverse engineering and unauthorized copy, illegal or unfair use, producers can try to develop technical devices such as cryptography, artificial technical limitation, non standard interfaces, complexity and global conception. Such situation can be found, for example, in videogames : the cassettes presentation of software make them very difficult to imitate, notwithstanding any patent concern.

This total is the sum of $2,3 billion in Motion Picture, $1,3 billion in Records and Music, $7,2 billion in Entertainment and Software, and $0,8 billion in Books. 1997 losses decreased to about $10,8 billion (IIPA, 1995 Report).

An example of such enforcement failure giving space to piracy is given by money counterfeing : in such case, piracy exists even if enforcment and legal sanctions are very high.

In this last case, the medium value of the good produced by the pirat < Mv.

Such a situation takes place, for instance, when trademark reputation is not high enough to to assert the quality of the good, or when a well known firm set a price far beyond consumer expectations.

[START_REF] Thomas | Informal Economic Activity[END_REF] separates four groups of activities and sectors in informal economy: household, informal, irregular (these last two defining what we call illegal sector) and criminal. The author argues that irregular and informal sectors are higly efficient, even attracting workers from official sectors, and they are very important for the allocation of resources and the reliability of macroeconomic variables.

The authors stress the argument that governmental policies designed to control and limit the impact of organized crime should take into consideration impacts and consequencies of public policy makers choices upon criminal organizations strategies.