Innovation [PDF]

Presentation at the STEPI Business-cum-Academia Roundtable 2007 Science and Technology Policy Institute (STEPI) Seoul, Korea October 3, 2007

Global R&D, Open Innovation and the Battle for Standards: Regaining Competitive Advantage in the German Automobile Industry

Prof. Dr. Alexander Gerybadze Center for International Management and Innovation Center for Research on Innovation and Services (FZID) University of Hohenheim PRÄS0711 Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards - Part 1

The TheGlobal GlobalRace Racefor forInnovation Innovation and andthe theBattle Battlefor forStandards Standards

Defining Definingthe theArchitecture Architectureof ofInnovation: Innovation: Standard-setting Standard-settingin inAutomobile AutomobileElectronics Electronics

Standard-setting Standard-settingClusters Clusters/ /New NewForms Formsof of Managing Managingthe theStandard-setting Standard-settingProcess Process

Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards

The New Dynamics of Innovation and Standard-setting

ƒ Globalization of R&D / R&D Offshoring ƒ Increasing Complexity of Innovation processes ƒ Open Innovation / Partnering and Networking ƒ Implementation process of Innovation critically dependant on parallel development of Regulatory framework ƒ New types of Standard-setting Competition ƒ Firms need to participate in Innovation race and in Standardsetting race Success in Innovation dependent on the Ability to Define and Influence Standards, the Dominant Design of an Innovation resp. the Architecture of a new Business Model Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Coordination between the Innovation Cycle and the Standard-setting Cycle Critical. Non-coordination results in the Double-boom Technology Cycle Diffusion of Innovation / Extent of Implementation and Acceptance

Standard-setting Cycle and Implementation „Death Valley of Innovation“

Research & InnovationCycle

Early Invention

Prof. Dr. Alexander Gerybadze

Euphoria

DesillusionNew ment Orientation

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Commercial Growth

Late Diffusion

Time

International Management & Innovation

Global R&D, Open Innovation and the Battle for Standars

The Game between Incumbents and Challengers

ƒ Innovation: a repetitive Game between Challengers and Incumbents ƒ In Europe often a game between incumbents from low- and mediumtech industries and challengers from high-tech industries ƒ European firms successful, if high-tech breaktroughs can be absorbed in LMT industries ƒ Critical: Be continuously innovative and dominate the standardsetting race ƒ Problem: High Technology often dominated by Non-European firms If the Standard-setting process is dominated by High-tech Challengers from the U.S. or Asia, then European Incumbents in LMT Industries have great difficulties in defending their territories Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards

Case Studies of the Battle for Standards are well documented in the Literature ƒ IBM 360 ƒ IBM Personal Computer ƒ VHS vs. Betamax ƒ Microsoft Windows ƒ ETHERNET ƒ GSM / Mobile Telephony ƒ Internet standards & protocol ƒ ... Most existing studies are focused on High-Tech Industries and document Cases for which U.S. based firms and sometimes Japanese firms have dominated the Standard-setting race Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards

Low and Medium Tech goes High-Tech: The Case of Automobiles Software High-tech

(15% R&D intensity)

8-10% R&D intensity

Semiconductors (12% R&D intensity)

Automobile Electronics & Vehicle IT

Low-tech

5-7% R&D intensity

Automobile Suppliers

3-4% R&D intensity

Automobile-OEM

(Sub-systems & Components)

(Final assembly & System integration)

European strengths Prof. Dr. Alexander Gerybadze

U.S. dominated 7

International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards - Part 2

Standard-setting Standard-settingCompetition Competition and andOpen OpenInnovation Innovation

Defining Definingthe theArchitecture Architectureof ofInnovation: Innovation: Standard-setting Standard-settingin inAutomobile AutomobileElectronics Electronics

Standard-setting Standard-settingClusters Clusters/ /New NewForms Formsof of Managing Managingthe theStandard-setting Standard-settingProcess Process

Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards

Innovation in Germany: the need for synchronizing the Innovation race and the Standard-setting race ƒ Traditionally a cornerstone of the German innovation system - Standard-setting institutions (e.g. DIN, ...) - Technical societies / Engineering communities (VDE, VDI, ...) - Conferences and Trade fairs (Achema, Dechema, Hanover fair, ...)

ƒ 70s and 80s: Great problems encountered for Products are both „High-Tech“ and „High-Norm“ ƒ New initiatives for synchronizing Innovation and Standard-setting activities ƒ Successful examples at the interface between High-tech and LMT - Automobiles / Electronics / Embedded Software - Machine tools / Mechatronics / Bus systems - Housing & Construction / IT / Energy systems - Chemical engineering / Electronics / Advanced materials Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards

More recently, European firms have taken a more active role in Standard-setting Competition ƒ CAN ƒ MOST ƒ FlexRay ƒ PROFIBUS ƒ PROFINET ƒ Industrial Ethernet ƒ AUTOSAR ƒ ... In most of these Cases, European firms have become quite successful in pushing the frontier and in coordinating the Innovation race and the Standard-setting race Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards

Managing the Architecture of Innovation and Decisive Control of Standards becomes more and more Critical

Patent

Control Unit

Membership Agreements

Software

Databus

Actuator

Trademark

Mechanical Component

Interface Protocols

ƒ A Standard is a precise description and agreement on how these different elements should work together ƒ A Standard will be viable and strong if all major agents in a market support this particular agreement - and nothing else Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards - Part 3

Standard-setting Standard-settingCompetition Competition and andOpen OpenInnovation Innovation

Standard-setting Standard-settingCompetition Competitionin in Medium-Tech Medium-TechIndustries: Industries:Case CaseExamples Examples

Standard-setting Standard-settingClusters Clusters/ /New NewForms Formsof of Managing Managingthe theStandard-setting Standard-settingProcess Process

Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards

The next Generation of In-vehicle Communication: The Evolution of the FlexRay Consortium ƒ Foundation of FlexRay-Consortium 2000 (BMW, DC, Motorola, Philips) ƒ Then Bosch, GM und VW join as Core Members ƒ Development phase until 2005 organized in 4 „Layers“ - 7 Core Members - 12 Premium Associates - 60 Associate Members - 40 Development Members

ƒ Implementation Phase 2006-2008 started - 19 Premium Associates - 57 Associate Members

ƒ Pioneering OEM drive Commercialization BMW 2007

Audi 2008

…

ƒ Very high probability, that FlexRay will become a World standard / 18 der 20 of largest OEM and Suppliers are Members ƒ Very strong complementary investment activities in Germany (Test & Measurement, Software, Peripherals, Engineering Services … ) Key issue: Flexray still at the end of the „Pre-paradigmatic Phase“. Will it turn out to be become the Dominant Design? Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards

Success in the Standard-setting race requires to follow a stringent Procedure

Core members of a Standard-setting Cluster pursue a consistent strategy emphasizing the following elements: A. Explore basic concepts that are likely to result in an accepted standard B. Convince customers and downstream complementors to invest in widespread application thereby strengthening the standard C. Enable suppliers and upstream complementors to invest in necessary equipment, tools and supplies D. Manage intellectual property (patents, brands, trademarks) for the major knowledge domains E. Organize a Club that clearly defines the roles, responsibilities and access rules for its members

Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Global R&D, Open Innovation and the Battle for Standards

Strategic Implications

ƒ Innovation strategies of European firms should be concentrated on areas with high likelihood of Standard-setting ƒ Core of Value creation should reside in the Application area and in Complex Knowledge embedded in Value network ƒ Innovation Policy should be concentrated on areas with standardsetting competence and innovation competence ƒ Less emphasis on high-tech programs for which global standards and Business models are determined outside of Europe ƒ Better linkage between Research community and Innovationoriented Business community within a region (country) ƒ The New Geography of Innovation: Clusters of Leading Firms, Suppliers, Standard-setting Clubs and Research Centers Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Back-up Slides

Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Standard-setting Competition and Open Innovation

The Dynamics of Standard-setting: The Penguin Effect ƒ Early Phase of Standard-setting critical for Innovation ƒ Pre-paradigmatic Phase ƒ Penguin-Effect ƒ Offensive Strategy with Open Proprietary Standards ƒ Attain Critical Mass Fast! ƒ Trendsetter can actively influence Formation of Dominant Design

Prof. Dr. Alexander Gerybadze

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International Management & Innovation

Standard-setting in Medium-tech Industries

By the Late 80´s, the CAN Innovation attained its Critical Mass

Prof. Dr. Alexander Gerybadze

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International Management & Innovation