0

2013

ARM – How innovation

drives research and

development JAN CHVOJKA

Course: 2AJ212, Teacher: Mgr. Pavla Nováková

D A T E O F S U B M I S S I O N : 1 1 . 0 5 . 2 0 1 3

1

Abstract

Not every company has to sell goods or provide conventional services to make a profit

- there are another ways of how to do business. It is also the case of ARM, company with

huge turnovers and profits, but no factories, no outlets. So what exactly does ARM do? And

what makes it so special, that it is the worldwide leader in its field? This document provides

more information about the special concept of ARM, which makes the company so interesting

and successful.

About ARM and its approach to innovations

ARM is an extraordinary, yet thriving business. Founded in 1990 in the UK, it has

spread worldwide and has become the world leader in innovation and development of

electronic technologies. ARM simply provides its partners (for example Samsung or

NVIDIA) with new innovative technologies and lets the companies use them in their

products. The licenses of ARM innovations (“the intellectual property”), are the source of

company’s profits.

So, without selling anything tangible, just by receiving license fees for its technologies

(especially processors for electronic devices), ARM makes millions pounds every year and it

is even considered “the world’s leading semiconductor intellectual property supplier“. What is

quite interesting is the fact that only about 1% of its annual revenue comes from the UK.

ARM performs both research and development of new technologies and focuses not

only on more effective products, but also social responsibility or global economic challenges.

By using the Push/Pull model (pushing new technologies to manufacturers and reacting to the

needs of customers) and closely cooperating with leading semiconductor manufacturers, the

company gets a strong competitive advantage.

Even though ARM also faces lot of challenges connected with R&D (for example

huge budget requirements or high risk), its concept of partnerships with manufacturers and

listening to its customers makes it possible to deal with them, or at least reduce them. Another

challenge is also recruiting skilled employees every year - it is solved by internship offers and

a training programme for new graduates. And apparently all those special methods and

processes the company uses to deal with challenges are key components of the company’s

business model, which makes ARM so different from other businesses.

2

Questions

1. Describe the difference between invention and innovation.

The term “invention” is basically the expression for a thought of new features of a

product (or a process), while “innovation” denotes the actual outcome of putting the

idea into practice – for example the invention might be the idea of controlling a mobile

device without using keyboard, the innovation would be a touch screen.

2. Explain the importance of new product development.

Both businesses and customers benefit from new product development. For

businesses, it is an effective way of competing with other companies, as well as a way

of designing better, more useful or remarkable products.

Users may appreciate new products especially because of new features that fit their

needs, sometimes the products might even cost less than the older ones.

3. Analyse the challenges businesses face when undertaking large-scale research and

development.

The main challenges are connected with money, time and risk. R&D processes require

lots of money, especially for hiring specialists and buying high-end equipment.

Another challenge is also time – development of a new product may take not only

months, but years or even decades. Moreover, large-scale research and development

also involves high risk – it might not lead to better products, or the new products

might not be successful among customers.

4. Evaluate how far its partnership approach to R&D gives ARM a competitive

advantage.

The competitive advantage stemming from partnerships with lead partners is

obviously very profitable and effective for ARM. Because of this cooperation, ARM is

better connected with its customers and can adjust its innovations to their

requirements. On top of that, the lead partners are able to test and publicize new

products very early, which means that ARM might sell more of them and in less time

than without this approach.

3

Conclusion

To sum up, ARM is a very special company which doesn't produce any tangible

products or provide usual services, yet it is a very successful and inspiring business, which is

both respected and profitable.

By developing new technologies with respect to customers' needs and selling licenses

to other companies, it became the world leader in intellectual property supplying and with an

effective system of partnerships it has a significant competitive advantage.

The ARM case study simply shows that even companies with business model that is

far away from usual concepts can be successful when using clever approach. And that might

probably apply to all economic sectors.

List of sources

The Times 100 Business Case Studies – ARM, How innovation drives research and

development [online]. Source: http://businesscasestudies.co.uk/arm/how-innovation-drives-

research-and-development/#axzz2SGvzuJoR

Annual Report and Accounts 2010 - How ARM makes money [online]. Source:

http://www.arm.com/annualreport10/overview/how-arm-makes-money.html

Wikipedia.org – ARM Holdings [online]. Source:

http://en.wikipedia.org/wiki/ARM_Holdings

Forbes – ARM Holdings on the Forbes 2000 Global List [online]. Source:

http://www.forbes.com/companies/arm-holdings/