There are a lot of different explanations about innovation since the concept of innovation was first raised. Here is one helpful definition of innovation, "The creation and implementation of new processes, products, services and methods of delivery, which result in significant improvements in outcomes, efficiency, effectiveness or quality." (Mulgan, G and Albury, D, 2003)
Innovation is the lifeblood of any company or organization and it is one of the key drivers to improving productivity. It helps businesses improve products making or services delivering or even introduce entire new ones. As the world economic is becoming more multinational and more competitive, innovation has become extremely important. However, innovation as a manageable process, there are so much to learn about it. The main challenges in the management of innovation that companies are facing can be described as complexity, dynamics, and costs. How to handle innovation in a better way will mainly decide whether a company is able to survive or not in the changing globe economic environment.
Strategic alliances and collaborations in research and development (R&D), Intellectual Property strategy and management, as two of the most important aspects they both have played crucial roles in the process of innovation management. This paper will discuss about both aspects by using the success of ARM Company as an example.
ARM was first found in November 1990, full name as Advanced RISC Machines Ltd. It was co-financed by a British company, Acorn and two US companies, Apple computer and VLSI Technology; Acorn provided technologies and 12 engineers in the first place. ARM's first client was Apple Computer, provided high-speed and low-power RISC processor for its new product called Newton Pocket PC. Only with the necessary technologies but lack of funds to buy expensive chip manufacturing, packaging and testing equipment, ARM decided to authorize its partner VLSI Technology to producing and provide technical support. This form of cooperation has leaded to ARM's initial success and laid foundation for the future development model.
Strategic Alliances and Collaborations
In the business world of 21st century, competitions between enterprises are dynamic, complex and globalised. "The requirements for handling innovations have increased in numerous ways: globalization of competition, explosion of technological knowledge, technological fusion, decentralization of knowledge, escalation of research and development costs, reduction of innovation cycles, and acceleration of innovation diffusion." (Martin A. Bader, 2006)
Because of the growing complexity of technologies today, it is impossible to dominate the entire knowledge area by one single company, only internal research and development is not enough for a company to fit into the changing environment. The new requirements of innovation have forced companies to seek collaborative R&D from outside. Therefore strategic alliance and collaborate with the others is becoming more and more important for survive in the competitive world. This collaboration could be with users, customers, suppliers and even competitors and others. Involving with third parties in the process of innovation brings many advantages to the company, such as better understanding of user needs, more market information or more sources to support internal R&D and so on, these are significantly reduced the uncertainty of innovation. As more collaborative activities going on, the focus of innovation process has shift from intra-organizational to inter-organizational. However, the biggest problem that generate from collaborative R&D is the trust. How to build a strong confidence and trust between partners has been brought on the table.
For the innovation purpose, companies have to invest in R&D and gain some competitive advantages to survive. Intellectual properties could help company to realize profit from temporary monopoly in the market and balance their investments in R&D. From the long term review, if company wants a steady and continues financial support to their R&D in the innovation process, it has to have efficient strategies to protect their intellectual properties. Therefore intellectual property has become an important element that affect a company's sustainability and the ability of gain return from investment. This has become even more important when the number of external collaborative activities is increasing.
In the process of innovation, it is not possible for a company to share all its technologies and knowledge with others in the collaborative activities, having some unique technologies always is an advantage to defend. There are many different way to protect a company's intellectual properties, such as patent, copyright, trademark and so on. However, there is no such a way that can totally protect IPs forever. The passive way protections like hiding technology or knowledge from the competitors are very inefficient. Instead of selling intellectual properties, licensing it become the better way of protect it.
The Success of ARM
Several years ago, ARM Company creatively came up with the concept of open, authorizable intellectual property to support the microprocessor technology of system on chips (SoC). This evolutionary concept has brought a new age to chip industry, at the same time intellectual property (IP) has became a very popular new model of economic.Nowadays, over 10 ARM chips have been sold every second and ARM gets 10 cents from every single phone sold with ARM chips on it. That makes nearly $200million income for ARM Company every year, this is an unbelievable achievement made by such a small company that have less than 800 employees.
Robin Saxby as one of ARM's creator, he had been thinking about how to make a small company like ARM to survive after he left Motorola to start new business. The only competitive product that ARM has was the world's first commercially usable RISC microprocessor and it was accepted by Apple. Compare to every giant chip manufactory at that time, ARM was very weak no matter on finance or human resources. It was like a small boat in the strong storm which might be destroyed at any time. ARM has chosen the kernel design of 32 bits integrated processor as its breakthrough point. Back to that time, 4 bits and 8 bits integrated processor was very popular and the processor giant Intel was focus on the PC processor. With the internet becoming more popular and the development of mobile telecommunications, ARM had its chance to success, its chip technology had satisfied the increasing need of electronic products and it is energy saving. ARM made its first success by choose the right area.
After many years development, ARM has found its own business model: instead of manufacturing product, it makes profit from charging intellectual property fees. The direct advantage of licensing its technology to the other chip manufacturers is avoid direct competitions and transfer ARM's competitors to partners. This has saved a lot of money and energy for ARM from trying to protect its technologies so ARM can focus on research and development of new technologies. Nowadays, ARM has expand its income from one source to many other different sources, for example, except one-time patent fees paid by customers, ARM also charges a certain percentage of patent usage fee which is a fixed amount of fees for each sold chip. These two part account for 40% and 30% of the company's total revenue. In addition, ARM also sells design tools which contribute about 15% to the total revenue. The rest of income comes from design consultant services or training services and so on. Millions of ARM chips were sold every year, at the same time of ARM making good profit, it also brings fortune to ARM's partners. This kind of co-existence of cooperation has created good business opportunities
In the information technology area, you may not say technology is the most important element but it must be very important to each enterprise. The success of ARM is not just because of its mature business model and right position in the market. It is because ARM processors have unique designs to make it popular. With ARM technology, different manufacturers could customize different chips for different systems. Technical uniqueness, flexible configuration and good capability have brought even more partners to ARM. Through collaborations, ARM has built its own reputation.
ARMhas realized the importance of R&D in the innovation. ARM's technical vitality comes from steady and continues investment in research and development. The main operation cost of ARM is from human resources, over 60% of employees are researchers or developers and over one third of ARM's income is spent on research and development activities. As mentioned before, most of ARM's profit is come from licensing its technologies. ARM has created a well cycle, technologies were used to making profit and then profit was used to support further research and development.
ARM Company generates a huge mount of revenue from licensing its technologies, many other companies also doing similar things but not every one is success. The reason that ARM is so success is because of such reason, every time when ARM gives license to its partner, it tries to make an interactive relationship with them, which gives ARM an inside view of how its technologies are used by its partners. Therefore this helps ARM to improve its design to best fit its partner's further requirements. On the other hand, ARM's partner could integrate a lot of different specific technologies to the ARM processor thanks to the ARM's standard kernel design, this make ARM product even more popular.
Every company has its own understanding of the market and strategies to protect their technologies or products. ARM thoroughly protects its technology by sharing it with the other companies and it has made an extensive use of its technologies which interests both parties. Although ARM is taking the risk of its technologies might be imitated. With the leading position, ARM made the others willing to cooperate with and buy their products which are the technologies ARM has. On the other hand, collaborations between ARM and the others not only reduced costs but also the profit from licensing or authorizing technologies gives continues finance support for further R&D and therefore keeps ARM stay in the leading position.
Neither from the size nor from the productivity, ARM is not the biggest company but its influence has almost covered every aspects of electronic industry. What we could learn from ARM is that it uses a flexible method to cooperate with others, and by licensing its technology, it not just protected its technologies but also avoid direct competitions, and further more it has built up its own networks and strategic alliance. We could summaries ARM's success as such aspects: firstly ARM has chosen the right area for its business in the right time, right location gave him more chance to success; secondly the flexibility of its business model brought him great fortune; then with the advantage unique technologies and leading position in the area, ARM's R&D focused on the flexibility and compatibility of its technologies, with continues investment in R&D and co-operate with the other companies, ARM has made a great success.
- Joe Tidd, John Bessant, Leith Pavitt, (2005), Managing Innovation, Integrating technological, market and organizational change, third edition
- Martin A. Bader, (2006), Intellectual Property Management in R&D Collaborations
- Mulgan, G and Albury, D (2003), Innovation in the Public Sector, Cabinet Office