Business Globalization

Transcription

1 EMC 2 Global Innovation Conference Santa Clara, CA, October 31, 2012 Business Globalization and the Importance of Entrepreneurial Innovation Richard B. Dasher, Ph.D. Director, US-Asia Technology Management Center Executive Director, Center for Integrated Systems Consulting Professor, School of Engineering Stanford University

2 Outline t Introduction: innovation as a process t Business globalization: has spread throughout the supply chain to R&D t Responding to the challenge t Open innovation t Beyond open innovation, entrepreneurial innovation 2

3 Innovation as a process Basic Research Applied Research Product Development Manufacturing, sales Idea A Creation (invention) Idea B Idea C Idea D Real-world deployment Definition of innovation: process that leads from creation of a new idea (invention) to its real-world deployment (often by commercialization) New ideas can first appear at any stage of R&D 3

4 Innovation differs from invention Invention Some inventions are instantaneous Some things are invented by individuals Some inventions are unplanned At first, the practical value of an invention may be unknown; many inventions never yield economic value Innovation Innovation is a process, and so it usually takes time Almost always, innovation requires more than one person and group Innovation refers to an intentional, managed process or its result Innovation always aims to provide an expected value in the real world New value-added product or service, or Greater efficiency Richard B. Dasher, Stanford University 4

5 Most business innovations are late stage (development-stage), incremental changes Add new feature to existing product (category) Take existing product (category) to new market New combination of existing technologies Change of business process New business model Completely new thing / category (rare) Nintendo Wii Nintendo DS to mature markets Apple i-phone Outsource employee medical services SaaS, new types of discounts (e.g. location-based) (c. 1980) Personal computer? Walkman? 5

6 The spread of globalization to R&D

7 World trade is ancient The first multinational corporation was The Dutch East India Company ( ) Factory in Dejima (Nagasaki) V.O.C. was also the first LL joint-stock corp Richard B. Dasher, Stanford University 7

8 Globalization goes beyond global trade t Globalization is t It is not t Selecting the optimal resource, partner, and market alternatives from a worldwide menu t A company conducting all its business activities in every (major) world market 8

9 Factors enabling business globalization (18 th through mid-20 th Centuries) t Improvements in transportation technologies and systems t Reductions in tariffs t Increase in the relative safety of travel t More open borders t The industrial revolution 9

10 Standardization enables outsourcing (which further enables globalization) Standardized parts can come from anywhere and be assembled anywhere 10

11 Outsourcing in the supply chain (1) Began with distributors in remote markets Infrastructure (machine tools, design software ) Cost effective Local market knowledge R&D Final manufacturing & Assembly Distribution & sales Components Business processes (HR, finance, ) 11

12 Outsourcing in the supply chain (2) Soon spread to components, infrastructure Infrastructure (machine tools, design software ) Specialized knowledge, capabilities Modular Work not so critical to final assembler strategies for competitiveness Cheaper than in-house R&D Final manufacturing & Assembly Distribution & sales Components Business processes (HR, finance, ) 12

13 Outsourcing in the supply chain (3) Outsourced manufacturing, BPs Infrastructure (machine tools, design software ) R&D Final manufacturing & Assembly Distribution & sales Components Keep mfr close to target markets Standardized processes Use lower cost labor Business processes (HR, finance, ) IT-enabled 13

14 Outsourcing in the supply chain (4) R&D traditionally difficult Infrastructure (machine tools, design software ) Negative factors Closely connected to corp. strategy Depends on tacit as well as explicit knowledge difficult to transfer across company boundaries R&D Final manufacturing & Assembly Distribution & sales Components Greatly facilitated by Internet, IT revolutions New (open) innovation relationships Business processes (HR, finance, ) 14

15 Outsourcing = just one channel for R&D cooperation with company-external partners t With outsourcing, specs are usually decided in-house t Other relationships may allow more ideas from outside t Results of exploratory R&D by subsidiary and / or affiliate companies is presented to parent t Joint venture research labs with other companies t Research relationships with universities t Venture investments in start-up companies 15

16 Open innovation Co. external idea incubation Spin-out company New market Co. internal idea incubation (R&D) Basic Research Idea D Idea E License out tech Applied Research Development New market Target market Idea B Idea A Idea C University collaboration, multi-firm joint research Corporate VC investing Buy tech license, buy start-up company Buy / merge with large company Based on drawings by H. Chesborough 16

17 Beyond outsourcing: Offshoring to foreign countries Enabling factors Motivating factors Accessibility and transport Low cost, data rich communications Modularity of parts and processes Improved responsiveness to customers, better relationships with suppliers Cost efficiency Resources, e.g. experienced, skilled workforce 17

18 Share of world spending on R&D % R&D Magazine, Dec. 2011, Global R&D Funding Forecast for

19 World Top Five Countries for R&D Spending R&D spending rank. Country (GDP rank) GDP $billions R&D Magazine, Dec forecast 2011 R&D % GERD GDP R&D % GERD GDP of GDP $bn $billions of GDP $bn Grow 1. USA (1) 14, % , % % 2. China (2) 10, , Japan (4) 4, , Germany (5) 2, , S. Korea (13) 1, , China: GERD = 0.6% of GDP in 1995, government policy aimed for 2.0% by 2010, but GDP grew so fast the goal could not be achieved GDP growth has averaged 9 10% / yr; GERD growth has averaged 12% 19

20 Where U.S. firms plan to expand their R&D % of respondents China 30 North America India Europe 16 Other Asia 11 Eastern Europe Japan 6 10 survey by R&D Magazine, Dec Rest of world 22 20

21 Motivations for doing global R&D: (A) To locate R&D in developed countries Survey of 229 MNCs by Kauffman Foundation, reported by De Backer & Basri

22 Motivations for doing global R&D: (B) To locate R&D in developing countries From survey of 229 MNCs by Kauffman Foundation, reported by De Backer & Basri

23 China R&D expanding Why companies locating / outsourcing R&D there? t Benefit from presence in long-term growth of China market not just to service U.S., Europe, Japan markets t t Technology and product localization activities for China market Technology standardization activities for China market t Hire young engineers with long-term potential t Closer connections with universities for long-term benefit t Not so much (yet): participate in advanced technology development 23

24 But, joint research paper co-author countries China, China India India USA 16, ,725 10,728 Japan 7,251 13,418 1,908 3,017 Germany 4,480 8,263 2,667 4,284 U.K. 4, ,137 3,646 Canada 2,806 7, ,590 Australia 2,796 7, ,338 Singapore 1,782 4, (no data) -- (no data) S. Korea 1,565 4, ,074 Taiwan 1,471 3, ,102 Battelle, R&D Mag, Dec Global R&D Funding Forecast 24

25 Innovation Strategies in the Context of Business Globalization

26 1. Open innovation: now on a global scale Co. external idea incubation Spin-out company New market Co. internal idea incubation (R&D) Basic Research Idea D Idea E License out tech Applied Research Development New market Target market Idea B Idea A Idea C University collaboration, multi-firm joint research Corporate VC investing Buy tech license, buy start-up company Buy / merge with large company Based on drawings by H. Chesborough 26

27 Open innovation aims to take advantage of start-up company strengths Develop new technology for existing market: big companies do this Example: Honda Jet Low Incremental product development: big companies do this Example: new auto models each year Execution Risk High Low Typically, only start-up companies will carry both risks Examples: Tesla, Facebook Market risk High Find new market for existing technology: big companies do this Examples: iphone, ipad (idea for drawing based on Christensen 1997) 27

28 U.S. economy growth of the small company sector in innovation Share of total corporate R&D spending in U.S. Small firms (< 1,000 employees) Medium (1K 25K) Large firms (25K+ employees) % 25% 71% % 38% 38% Share of U.S. patents to firms with less than 1,000 employees t 1972: 5% of new U.S. patents t 2000: 30% (Borchardt 2008) t Pattern change shows that venture investors are financing an increasing share of (national) innovation 28

29 Open innovation = Acquisition and Development (?) t Big companies typically seek fundamentally different kinds of ideas from external sources than they develop in-house t Robust company-internal R&D is still necessary t As start-up companies mature, the risks associated with their ideas decrease, and they become acquisition targets t Acquisitions may leverage company-internal R&D budget with funds from elsewhere in company budget t This system puts new pressures on company R&D workforce t t Increased allocation of time and effort to integration (traditionally not incentivized) Frustration when company-internal ideas are abandoned in favor of new ideas from outside 29

30 2. Add (company-internal) entrepreneurial innovation t Allowance of some work time for personal projects t Company competitions for new innovative ideas t Encourage external learning (seminars, etc.) t Recognize (incentivize) the creative efforts required to integrate external ideas successful integration may require new approaches from bottom-up t Develop mechanisms to spin out project for company-external incubation 30

31 Summary t Introduction to innovation t Spread of globalization to R&D t Spread of outsourcing throughout supply chain t Increase of R&D spending in Asia t U.S. (and other advanced country firms) shift in global R&D focus toward rapidly developing markets t Responding to globalization 1. Open innovation 2. Company-internal entrepreneurial innovation 31

32 Final comments t Without company-internal entrepreneurial innovation, open innovation really doesn t work t Company needs entrepreneurial employees in order to t Keep up with rapidly emerging new ideas in the start-up world t Understand entrepreneurs and integrate start-up ideas (from sources that typically lack the well-defined processes of a large firm) t Have the excitement and passion that are essential to robust innovation 32