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September 25, 2007

Radical Collaboration

Steve Hamm, writing in BusinessWeek's special section on innovation, discusses lessons learned from IBM's innovation factory ["Radical Collaboration," 10 September 2007 print issue]. The article is basically the short version of IBM's journey from an organization that viciously guarded its R&D pursuits to an organization that welcomes deep collaboration. The process (and the article) began in IBM's chip division that, despite heavy investment by the company, was losing money. John Kelly, head of the chip division, realized that something had to change or his job probably would. As a result, he confronted the closed culture that had been embraced by IBM over the years and got IBM decisionmakers to accept the idea that collaboration was necessary for survival.

"The tech giant already had a handful of alliances aimed at improving manufacturing and chip design. Several partners had come forward asking for deeper relationships, including collaboration with scientists working for IBM Research. ... Since then, IBM has built what it calls an 'open ecosystem' of chip R&D with nine partners, including Advanced Micro Devices, Sony, Toshiba, Freescale Semiconductor, and Albany Nanontech, a university research center. All told, in five separate alliances, IBM partners have contributed more than $1 billion to help expand the company’s facilities and buy the latest chipmaking equipment. But just as important, they're providing brainpower, including more than 250 scientists and engineers who now work in East Fishkill. As a result, IBM's chip operation boomed, and, even now, during a cyclical downturn in the chip industry, it's still making a profit."

Traditionally companies have held their R&D closely because they worried about commercial espionage. IBM was no different. Times, however, are changing.

"IBM is reinventing the way it innovates. At one time the tech giant was a true believer in go-it-alone R&D. The feeling was that if a technology wasn't invented by IBMers, it wasn't as good. Now the computer pioneer realizes that no matter how big an organization is, more smart people are going to work outside its walls than inside. So it courts R&D partners aggressively. 'We are the most innovative when we collaborate,' declares Chief Executive Samuel J. Palmisano."

According to BusinessWeek, IBM is not alone in this rush to collaboration. In the past, small businesses have been more likely to look for partners than large organizations because they knew that partners could help them grow faster. What's new is that now large corporations are starting to collaborate. Such companies used to pitch their customers by claiming, "Our company is better than our competitor's company." Today, they are pitching, "Our collaborative group is better than their collaborative group."

"IBM's decision to invite in outsiders and open up the innovation process reflects one of the most intriguing concepts in corporate strategy today. Many major companies have concluded that succeeding in the 21st century requires teaming up with other companies—or even individual researchers—to create so-called innovation networks. 'These networks allow companies to seamlessly weave internal and external innovation capabilities to optimize profits and speed products to market,' says Navi Radjou, an analyst with Forrester Research. Companies no longer compete simply against one another. Now alliances devoted to innovation go head-to-head. bt Group, basf, Boeing, Eli Lilly, Procter & Gamble, and IBM are the pioneers. They all have revamped their strategies to expand collaboration with outsiders. Forrester estimates that while most major companies are aware of innovation networking, only about 20% to 30% are experimenting with it, and a mere 5% have mastered the practice."

I suspect that BusinessWeek's estimate that a "mere 5% have mastered the practice" really refers to collaborative innovation rather than collaboration alone. Collaboration, I suspect, is easier than innovation -- and either collaboration or innovation alone is easier than collaboartive innovation.

"There's no one-size-fits-all approach to collaborative innovation. What works best overall, strategy consultants say, is to think radically. Some companies turn suppliers of goods and services into something much more valuable—sources of ideas about how to design a product and its components. Boeing, for instance, tapped a global network of suppliers to produce much of the detailed design work for its new 787 Dreamliner jet. Other companies are busy prospecting for valuable new ideas from individuals and startups. Britain's bt placed scouts in India, China, and Silicon Valley to spot useful inventions and funnel them into its businesses. Yet another approach: Bring together a handful of companies to sharpen their competitive edge together. Businesses have been doing that sort of thing for more than two decades, but the alliances are different now. Increasingly, they are global, not national."

This global networking approach makes a lot of sense in an "always on" world. The article says, for example, that Boeing's global effort allowed it to trim twelve months off of the time to market for its Dreamliner. One of the interesting things that IBM is doing is removing as many silos as they can -- including silos between collaborating companies.

"In most chip plants, those who aren't employees typically wear different-colored bunny suits to distinguish them. Not so in East Fishkill. All the scientists and engineers—2,000 IBMers and hundreds more who work for partners—wear the same white outfits. They work together without regard to who issues their paycheck. Sometimes an IBM worker leads a team; other times it's somebody from AMD or Freescale. 'We don't work in silos,' says John Pellerin, the top AMD manager at the plant. 'We're a fully cross-mixed team.'"

The article points out that it wasn't just visionary people who saw the future of collaboration it was also accountants. Chip fabrication is so expensive that only a handful of large companies can go it alone. Even though collaboration might be the right thing to do that doesn't make it the easy thing to do.

"If the benefits of collaborative innovation are easy to spot, so are the pitfalls. Think how hard it is to get people in a single corporation on the same page. Now multiply that by a factor of three or five. Who's in charge? Who owns the innovations? ... Experts say the secret to successful alliances is agreeing on common goals and setting rules of engagement from the start. Then the partners should set up procedures for day-to-day interactions, including spelling out what can be discussed by people from different companies and what's strictly off limits. ... In some cases, to avoid conflicts companies target fundamental research they're willing to share, even with rivals. This approach is starting to catch on in the pharmaceutical industry."

The article goes on to point out that partnerships leading to innovation need not begin with R&D efforts. Proctor & Gamble, for example, uses a very different approach.

"Once P&G CEO A.G. Lafley set a goal of going outside to find half of all innovations, the people he put in charge realized they would have to set up an external department to cherry-pick innovations and bring them into P&G. An in-house team of more than 200 now sizes up more than 2,500 innovations a year. "You have to set up an internal structure so you can digest all this stuff," says Larry Huston of strategy consultancy 4inno, who formerly managed P&G's external innovation programs."

When collaborative efforts fail, the article notes, often it is because corporate interests start to diverge. Clearly, the same path doesn't lead to different destinations. Even when objectives remain similar, corporate cultures can clash. Sometimes the solutions are easy and sometimes they're not.

"At IBM, people typically reached decisions by discussing problems in open meetings. Toshiba's engineers preferred to see presentations, read reports, and make decisions later. IBM's dearth of reports made the Japanese engineers suspect they were being kept in the dark. The solution: assigning people to take notes on the meetings and issue reports later."

The concluding section of the BusinessWeek article is titled "Motto For the 21st Century: Network or Die."  Networking, of course, is at the heart of the information age.

"IBM's alliances with the likes of Albany Nanotech, AMD, and Freescale have paid off just the way its leaders hoped. Now, the company is expanding its innovation ecosystem to include suppliers of chip materials, chemical companies, and chip-design software companies. 'This is a model that will not only survive but will prosper, predicts [John] Kelly, who is now director of IBM Research. For pioneers such as Kelly ..., there's no turning back. For other R&D leaders, an open-innovation strategy is still new and risky. But as more companies embrace it, the pressure will be on the holdouts to reach across organizational borders in search of ideas and greater productivity. They can delay, but they could be left far behind if they don't play."

I'm a believer in collaborative innovation. My last post on the subject was back in July [The Medici Effect and New Design]. R&D efforts are generally more complex and difficult to work on than design collaboration, but the benefits can be even greater. Network or die isn't a bad motto.

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