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Collaborative innovation: forging a new path to profitability in the electronics industry.

Executive brief

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Electronics companies face short product lifecycles, commoditization,

intense competition, fast-changing demand and brand erosion. Traditionally,

the standard response has been to single-handedly rush innovations into the

marketplace and hope they catch on. Producing profitable and sustainable

growth, however, requires a radically different approach.

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Innovation alone won’t grow profitsFor the last ten years, innovative companies consistently have

been able to grow profit margins eight times faster than other

firms, according to an article in BusinessWeek.1 While innova-

tion is a major component of competitive differentiation—and

a compelling way to heighten marketplace acceptance and

enhance revenue success—it is how innovation happens that

is setting businesses apart.

Traditionally, innovation has been built into products through

internal research and development efforts. But advances in tech-

nology have become too fast paced, complex, expensive and

time-consuming for most organizations to remain informed on

every issue that affects their business, especially when it comes

to introducing new products. As a result, business models and

the way companies drive innovation have begun to change dra-

matically. Although no two organizations will approach innovation

in exactly the same way, IBM has identified several archetypes,

including the following:

The marketplace of ideas—Employees are encouraged to

develop and promote their ideas to colleagues and corporate

leaders. The best new products and ideas are implemented

quickly to test their feasibility. Think Google.

The visionary leader—A senior executive, with outstanding

foresight into industry trends, potential products or a new

business method, motivates employees to pursue his or her

vision. The executive also has an uncanny ability to spot

new ideas with potential. Think Steve Jobs and Henry Ford.

Innovation through rigor—Project teams use carefully

designed processes to produce results systematically.

These companies closely monitor the industry landscape

and focus their tactics to quickly and efficiently develop

solutions. Think Samsung.

Innovation through collaboration—A company teams with

outside firms and people to develop the most appropriate

solutions to meet customer needs. Collaborative organiza-

tions create a common performance vision with partners

and nurture innovative cultures that can support the busi-

ness model. Think Vodafone and IBM.

One point to keep in mind about these archetypes is that they

all heavily rely on collaboration, whether it’s internal, external

or both. Even the visionary leader works closely with others to

identify productive ideas and areas for improvement, because

that is often the only way to access the diverse sets of skills and

resources needed to implement today’s multifaceted solutions.

With digital convergence and the demand for solutions instead

of products, many businesses are finding that they must

collaborate — or risk being left behind.

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Top benefi ts realized through collaborative innovation.

(Percent of respondents)

Access to markets/customers

Higher quality or customer satisfaction

Access to skills/products

Reduced cost

Increased revenue

Focus on specialization

Faster time to market

Overall speed and strategic fl exibility

Move from fi xed to variable cost

Shared/reduced risk and capital investment

0 10 20 30 40 50 60

Source: The Global CEO Study 2006.

59

48

48

44

44

39

37

33

26

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That’s why the electronics industry is embracing collaborative

innovation, a new business model that enables organizations

to differentiate themselves more effectively by leveraging the

core competencies of an outside source to augment and drive

internal innovation. All while minimizing costs, speeding time

to market and improving success rates.

Global collaboration is needed throughout the innovation

chain—from research and development to commercialization.

And now that there’s a fundamental shift under way in terms

of how companies create value—a transformative change

that extends beyond electronics companies—organizations

are challenged to better support cross-enterprise collabora-

tion and fast-cycle-time innovation.

A new paradigm is taking rootClearly, CEOs of electronics companies recognize that ongoing

timely introductions of new products is necessary for long-

term marketplace success . And they realize that the ability to

maintain tight development cycles is essential to gaining first-

mover advantages, including potentially greater market share.

However, execution is often difficult with excessive cycle times

resulting in cost overruns and lost revenue opportunities. While

the consumer electronics segment is affected most, disruptive

trends are felt throughout the electronics industry value chain.

To maintain a competitive edge, organizations in all industries

are looking to outside resources to significantly reduce costs

and time to market—and increase responsiveness to customer

needs. In fact, the IBM Global CEO Study 20062 found that top

CEOs are collaborating beyond their organizations—with their

extended networks of suppliers, customers, business partners

and others.

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Even so, electronics companies still generate twice as many

ideas internally as externally—probably because most innova-

tion efforts are closed, protected and increasingly inadequate.3

Collaborative innovation offers a glimmer of hope to an indus-

try that depends on innovation for its survival. If companies

can determine which organizations they should collaborate

with and when, they stand a better chance of achieving mea-

surable results, despite the business challenges.

Cultivating collaborative innovationNearly 90 percent of the electronics CEOs interviewed for the

IBM Global CEO Study 2006 believe that collaboration is impor-

tant to the innovation process. Nevertheless, many electronics

companies find that while technological knowledge is plentiful,

business insight is in short supply. Because of business skills

shortages and engineering-dominated cultures, technological

knowledge and business insight aren’t always combined at the

right time or to the right degree.

Therefore, to establish effective collaborative innovation

approaches, electronics companies need to fundamentally

rethink some aspects of their operations.

Adapt to the “two-way-street” reality of collaborative innovationFor the majority of companies, innovation is still driven by

one-way, secretive internal processes. At its core, however,

collaborative innovation is about embracing a two-way process.

Part of the challenge is to give up secrecy and total control over

new products in favor of potentially greater progress at a faster,

more efficient pace with the right input from parties that have a

stake in the outcome.

Companies also need to get used to the idea of opening their

patents—some of their most valuable assets—to partners and

even competitors to promote progress and foster new ideas. IBM

has opened access to more than 500 software patents for indi-

viduals and groups working on open source software. IBM’s goal

is to cultivate an industrywide “patent commons” that can help

spur IT advancements that are beneficial to developers and

users.4 In January 2008, IBM opened its jazz.net development

platform to provide an open, commercial community designed

to help companies globally and transparently collaborate on

the development of IBM Jazz™ platform–based technology.

Rather than simply providing a vehicle for feedback, the Jazz

platform enables the global community to be a part of IBM’s

development process from start to finish, resulting in more effec-

tive solutions.5

Build on sharing andnurturing a culture of innovationIn addition to considering what they want to share, electronics

companies must also carefully consider how to share new ideas.

The process of bringing new insights and approaches to the

surface requires a high level of creativity and innovation. More

specifically, it requires companies to develop new forums and

networks dedicated to collaboration—forums that spark needed

dialogues and inspire participants to generate new ideas. For

IBM, this meant implementing three big innovation drives:

InnovationJam—The largest online brainstorming session

ever conducted, InnovationJam attracted more than 150,000

people from 104 countries and 67 companies and generated

more than 37,000 ideas.

Global Technology Outlook—An in-depth, yearly presenta-

tion at which scientists from IBM Research discuss emerging

software, hardware and services technology trends that are

expected to have a major influence on business in the next

two to ten years.

Global Innovation Outlook—An annual event that brings

together some of the brightest minds in business, politics,

academia and nonprofits to collaboratively address the

most pressing business, societal and technological issues

by engaging in an ongoing global dialogue.

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Take advantage of the right toolsTo promote constructive collaboration, it’s important to pro-

vide context to show how related information is relevant. For

example, companies with geographically dispersed teams

no longer have to depend on face-to-face meetings, telecon-

ferences or e-mail to collaborate. Now they’re finding it even

easier to share ideas and content with each other—as well

as monitor the status of a project—when access to a wiki is

combined with project-specific information.

According to a recent report from the consulting firm Frost

& Sullivan, companies that arm themselves with effective

collaboration capabilities routinely outperform competitors in

areas such as revenue growth and operating margins.6 These

collaboration tools can range from enterprise instant messag-

ing to Web 2.0 technologies such as social software.

To that end, IBM has developed a variety of solutions that can

help electronics companies accelerate development cycles,

reuse product design knowledge and align IT and systems

investments with business priorities—freeing them to focus

on creativity and innovation.

Stay focusedAs the business environment moves from closed-door research

and development to a more open, collaborative approach, IBM

is helping electronics companies:

Identify strategic business ideas

Spin off new innovation efforts

Build collaborative networks

Develop and refine business offerings

Conduct product trials to improve offerings.

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Previously, product-based

innovation was of greatest

importance. However, market

pressures are driving the

importance of business and

operational model innovation.”

—Electronics CEO study participant,

The Global CEO Study 2006

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For years, IBM has worked closely with several major electron-

ics companies to create marketplace-leading chips for top video

game consoles, along with embedded software, wireless health-

care products, speech translation solutions and numerous other

innovations. This experience has given IBM the industry expertise

required to deliver cutting-edge solutions and processes.

Singing its way to increased salesFor two years, IBM and a developer of karaoke solutions in Japan col-

laborated at IBM’s Yamato Laboratory to create two groundbreaking

wireless karaoke controllers. The new controllers eased the burden of

searching and choosing songs from unwieldy paper catalogs by using a

personal digital assistant device with a touch screen panel and easy-to-

navigate search options. The company chose to work with IBM because

of IBM’s deep technology and engineering expertise, extensive design

experience and manufacturing connections to the joint project.

Planting the seeds of successElectronics companies can achieve significant business results

and expand their competitive advantages by using IBM’s prod-

uct lifecycle management (PLM) solutions to speed new ideas

into the marketplace more efficiently. Build first-of-their-kind prod-

ucts. And become more responsive to business shifts throughout

the world.

By leveraging IBM’s integrated product development process

across different electronics segments, organizations can reduce

their time to market and operational expenses. What’s more,

companies can focus on their core strengths and pursue new

business opportunities by taking advantage of business trans-

formation outsourcing to better manage a growing range of

business processes.

Through ongoing collaboration with IBM and other organizations,

businesses can access a wide range of skills sets to amplify

creativity and fuel profitable growth. In this way, innovation will

continue to reseed itself as the industry follows a path of joint

cooperation. This also represents a critical step in becoming a

globally integrated enterprise, the new successor to the multina-

tional corporation.

Designing a winning combinationA large Japanese consumer electronics company needed to streamline

and simplify its �-D design processes with a single, comprehensive

toolset capable of meeting all of its product development needs—from

styling to manufacturing. By deploying the CATIA V� solution, the

company reduced development times and optimized the use of existing

designs and engineering know-how. Also, the collaboration with IBM,

enabled by IBM’s PLM solutions, helped reduce manufacturing costs on

mock-up orders by �� percent.

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Digging deeper for a long-term advantageIn 2006, IBM introduced the concept of a powerful, new busi-

ness design and dubbed it the globally integrated enterprise.

It means that a company has globally shared services and

assets that can be deployed worldwide, making it possible to

respond to marketplace demand quickly and efficiently. In an

environment where competitive advantages and economics

are being redefined by an increasingly flat, smart, connected

and unpredictable world, companies have little choice but to

embrace the change.

While the idea of a globally integrated enterprise is still evolving,

several attributes have surfaced that promise to clearly sepa-

rate the winners from the losers. A successful enterprise can be

viewed as one that:

Shifts its focus from what it makes to how it makes it

Understands that economies of expertise will thrive regard-

less of location

Believes that open always wins.

Globally integrated enterprises adopt shared business and

technology standards that enable businesses to plug into

global systems of production—from sourcing to design and

from manufacturing to distribution. Most notably, they recog-

nize that open is the new leveler that stimulates the free flow

of ideas and promotes new levels of collaboration. As one of

the first globally integrated enterprises on the planet, IBM is

helping electronics companies take advantage of this new

business model in a way that’s proven to be successful.

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Cutting a supply chain redesign down to sizeIBM recently helped a manufacturer of signal processing circuits develop

a new custom supply chain management process that allows it to model

and optimize its production plans in real time.

With 10,000 unique products and �0,000 customers worldwide, the

company now has the ability to match current demand with supply to

an extraordinary degree. Moreover, IBM worked with them to imple-

ment the project in just half the time typically required.

Tapping into a wealth of inspirationAs an integral part of an overall business strategy, electronics

companies are keenly aware of the need to embrace organiza-

tional changes to support collaborative innovation and generate

more profit from valuable ideas, no matter where they originate.

IBM has repeatedly observed impressive results for companies

that use the collaborative innovation model—and these benefits

are particularly important for the electronics industry. Not only

does this model help promote collaborative innovation through-

out the extended enterprise, it helps enable organizations to:

Improve worldwide production and distribution capabilities

as well as product quality

Implement an integrated, global management and planning

system to improve visibility, speed marketplace response

and increase efficiency

Create a flexible, efficient operating infrastructure to meet

growing global demand.

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The truth is that innovation networks aren’t always easy to manage; there will always

be hurdles to overcome. But working with IBM can make it easier for electronics compa-

nies to access more intellectual and technological horsepower than they could on their

own, helping them to make strategic changes to their offerings, business models and

innovation capabilities. It’s hard work, but companies that are able to transform them-

selves in this way have the best shot at becoming long-term leaders—and realizing

sustainable profits.

For more informationTo learn how IBM is helping to deliver on the promise of collaborative innovation,

contact your IBM sales representative or visit:

ibm.com/electronics

About the authorsKumi Ito is an associate partner in Strategy and Change with IBM Global Business

Services. She leads Japan operations strategy practice with deep experience in innova-

tion management, new business development, marketing and research management.

Paul Brody is a partner with IBM Global Business Services. He brings a decade of

consulting experience to the position as the global leader of the electronics industry

strategy practice.

© Copyright IBM Corporation 2008

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References in this publication to IBM products or services do not imply that IBM intends to make them available in all countries in which IBM operates.

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1 David Henry, “Creativity Pays. Here’s How Much.” BusinessWeek, April 24, 2006.

2, 3 Expanding the Innovation Horizon: The Global CEO Study 2006, March 2006, http://www.ibm. com/bcs/ceostudy

4 IBM, “IBM Pledges 500 U.S. Patents To Open Source In Support Of Innovation And Open Standards,” press release, January 11, 2005, www-03.ibm.com/press/us/en/pressrelease/7473.wss

5 IBM, “IBM Innovations to Help Companies Overcome the Challenges of Globalization,” press release, January 14, 2008, www-03.ibm.com/press/us/en/pressrelease/23308.wss

6 Frost & Sullivan, Meetings Around the World: The Impact of Collaboration on Business Performance, June 2006.

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