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NXP Semiconductors Switzerland located in Zurich is one of NXPs main design centres in Europe. Its principal activity is to design chips for Clocks, Watches and Graphic displays.
2. Innovation process and activity
NXP Switzerland has adopted an innovation model that recognises the influence of technological capabilities and market needs, and best described Rothwell's interactive model [Block 3, p. 62].
Figure 1. Rothwell's interactive model of innovation [Block 3, Figure 15]
However, in most cases the market is the source of new ideas for product development and the effect of technology seems to be less dominating factor as old and mature IC fabrication processes are dominantly used by organisations in Zurich. Due to the fact that we use our own IC process technology and internal manufacturing factory all circuit design activities that I have experienced here are performed solely by internal engineering resources. This is in line with one of closed innovation principle - To profit from R&D, we must discover, develop and ship it ourselves [Chesbrough, 2003].
In fact, the innovation processes within NXP organisation are divided into a series of sequential stages with defined gates acting as decision points between the stages and best represented by the Stage-Gate model in Figure 2.
Figure 2. Stage Gate Process [Cooper, 1990]
This model breaks innovation process into a series of sequential stages with defined gates acting as decision points between the stages. At the end of each stage is a stage gate, which consists of a phase review to evaluate whether the previous phase or stage was successfully completed. Ideally, the criteria for passing through each gate are clearly defined beforehand.
The gates help to ensure completeness and quality in the innovation process so that no critical activities have been omitted. Although such a sequential approach with evaluation gates enhances the effectiveness and efficiency of incremental innovation process, more iterative loops between idea generation and concept definition may be required for more radical innovations.
3. Recent change
Recent developments surrounding organisation and company as follows have stimulated the shift from closed innovation to open innovation.
After series of several business sell-off and re-organisations, the company has decided to re-position itself as a High Performance Mixed Signal company [NXP Semiconductors, 2010b].
With the closure of several IC fabrication factories [NXP Semiconductors, 2010a], the company has decided to take a route to Fab-lite business model in which less manufacturing is done internally and more is sent to external foundries.
Especially for Zurich organisation, those changes have forced them to use the external process technology in the latest design project. However, for some design components that should match with new process technology, it usually requires long development time. As time-to-market is one of our most significant concerns we had to find a design component provider who has already found the solution for the external manufacturer that we are supposed to work with. I think this can be regarded as evidence that the organisation is transitioning from closed to open innovation and it is reflected in one of open innovation principles - We should profit from others' use of our IP, and we should buy others' IP whenever it advances our own business model [Chesbrough, 2003].
At the time of writing our design group is in the middle of integrating component from third party design service provider and I have found challenges to adapt to this new design environment. For example, we have some excellent internal analogue and mixed signal development expertises and they have been so far doing a good job as a market differentiator for the end product. Therefore, there are a strong presence of the Not Invented Here syndrome in the group and the pressure to develop design component internally.
I can say that NXP Switzerland's innovation system is best viewed as closed innovation system since most of new product development process and involved innovation activities took place within the firm boundary. However, recent external environment changes force to work within open eco-system and demand to adapt the mindset to the new system.
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'Connect and develop' initiative
R&D productivity at Procter & Gamble has increased by nearly 60% thanks partly to the connect and develop approach which contributes to create better, cheaper products but faster by identifying promising ideas throughout the world and applying its own capabilities to them [Huston, 2006].
2. The approach
The technology company has an R&D group which is good for exploiting knowledge and doing research inside the firm itself. However there is no guarantee that all these research will be a success and it has high risk and cost associated.
According to the connect and develop approach, the company should utilize closed R&D networks as well as open networks of individuals and organisations to look for ideas in government and private labs, academic and other research institutions, among suppliers, distributors, competitors, development and trade partners. In the process of product development, it is encouraged for R&D staff to seek related work elsewhere in the organisation, and then external sources can be considered as they might have already a solution. If none of those possibilities apply, the company can initiate developing a solution from scratch [Huston, 2006].
In fact, only fractions of internal technologies are actually used in products. Many unused but valuable technologies are kept hidden, and become useless in the end. Instead of putting it into archive, the company can license its technologies in order to make extra revenue and may gain access to complementary technologies.
3. Benefits and issues
By adopting open innovation approach companies can enjoy a much larger base of ideas and technologies and they set up collaborations to keep pace with new developments. They seek technologies or products that have proven their market potential, which they can improve, scale up and commercialise [OECD, 2008]
Therefore I suppose in that sense the largest benefit from emulating P&G's connect and develop approach is a much higher success rate in new product development. Because P&G's approach is talking about transforming ideas and technologies into a product or service that could bring a commercial success. According to the approach a company can bring innovative and better quality products to the market in most effective but cost efficient way by connecting all possible research networks.
In addition, collaborations with external partners are also a good stimulus to internal R&D staff as they can only find and listen what customers want and outsiders think by getting out of the lab.
However, it should be noted that a company might lose its important competitive edge if it is more and more dependent on accessing external knowledge and that will lead to a progressive loss of internal capabilities to develop its own innovation. Another issue is that P&G's approach may create a complex set of structures and interactions with hundreds or thousands of small technology providers that could lead to a delay in project and huge transactional cost so it should be systematically managed.
P&G's approach can help organisations to reduce R&D cost, expanded innovation output and opened paths to the new markets. Nevertheless, balance between internal and external innovation should be maintained otherwise it might lose an important part of its R&D capabilities over time.
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The innovation environment has changed to open innovation describing openness and collaboration at its centre. However, some criticisms have been raised by Trott and Hartmann as follows [Trott, 2009]:
The potential risk of giving away critical core competences to others.
Success is more than simply being first to commercialize a technology.
R&D management should be integrated into strategic management process of business.
2. Developing innovation model
This section presents an innovation framework which is developed to reflect criticisms from Trott and Hartmann and integrate into open innovation platform. Figure 3 represents a diagram of innovation model developed.
Figure 3. Innovation model
2.1. General description
In this model, the innovation process is mainly driven internally within the firm. However, both internal and external research sources are linked together in all steps of the process so that innovation activities could have external influence or even outsourced externally, reflecting open innovation concept.
The entire innovation process is guided by the corporate strategy and risk taking policy, reflecting criticism from Trott and Hartmann.
Gates and filters are used as decision points between innovation activities that take place in the different steps of innovation model and those are described in detail in the following sub-sections.
2.2. Idea capturing
New ideas are generated and collected in this creative step. Those ideas can come from either internal organisation or external sources such as customers, suppliers and other R&D networks. Filters are used to sort the attractive and less attractive ideas. The less attractive ideas should be documented and stored for future because circumstance may change in such a way that it is more favourable for these ideas.
2.3. Feasibility study
A more detailed conceptual model is developed in this step, transforming the idea into a workable concept. Then the developed concept is documented and shared with people for reviews. It is further investigated by collecting more information as well as prototyping to determine its feasibility.
In parallel with feasibility check, related business cases are prepared and risks related to outsourcing are analysed as there is a potential danger of knowledge leakage [Trott, 2009].
Finally, launch gate is held to make a decision of which innovation project to go and when to launch.
It begins with project planning which constitutes resource allocations and scheduling in light of the alignment with corporate strategy. The development step continues as it involves design, implementation, and testing of innovative solution. An implementation gate is used to conclude development phase.
As the innovative solution is formalised, the new innovation is ready to be released to market. Then the focus will be on achieving early sales and market presence, usually marketing and sales resources involved. At the same time, the solution may be further exploited in the review to generate more value and the company may expand the use of technology by licensing, forming joint venture or spin-offs.
2.6. Iteration in the process
In this innovation model, there are many iterative loops that occur concurrently between the innovation steps even though it is not represented clearly in the diagram. Innovation management activities such as alignment with corporate strategy also occur throughout the process.
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Areas for improvement in NXP's innovation process
As briefly described in the previous section, NXP Semiconductors Switzerland has begun to adopt open innovation approach gradually. Some identified issues related to the introduction of open innovation are as follows:
The organisational culture and Not Invented Here mentality.
Collaboration with external party
Lack of corporate strategy on open innovation approach.
2. Areas for improvement
To apply open innovation approach, the main challenge lies in accessing external resources and changing the culture to encourage and facilitate searching outside the company. In the case of P&G, they needed to move the company's past attitude of "Not Invented Here" to enthusiasm for "Proudly Found Elsewhere" [Huston, 2006].
So far NXP in Zurich has relied fully on internal capabilities. For example, there has been a practice of the organisation to develop all circuit designs internally. Perhaps there have been some company-level partnerships, but the organisation was somehow isolated from the outside world. That may explain the reason of strong resistance of taking external solutions. To overcome this I think long-term plans to promote open innovation throughout the company should be set up so that researchers and engineers could recognise and learn that open innovation brings much broader ideas and technologies into the company and it is a strategic tool to explorer new growth opportunities at a lower risk [Docherty, 2006].
The role of R&D leadership changes when the company starts to source externally; the more external innovation is sourced by the form, the more routines, values and culture will need to be transformed, along with an increased need for supportive technological systems [Witzeman, 2006]. Managers must lead a cultural shift away from an internal thinking and into a mindset that encourages the organisation to see the world as their base.
From open innovation perspective there is certainly lack of strategy within NXP Switzerland. For instance, the company should develop an explorative strategy and build extensive alliance network, driven by the top leaders of the organisation, in order to leverage internal and external research resources. It is also argued that open innovation is destined to fail if it is seen as solely an R&D strategy or isolated as an experiment in some other corner of the company [Huston, 2006].
Innovation process has evolved in such that firms have to collaborate with each other. However this requires new ways of collaboration as they are also competing concurrently. To be successful in a new innovation environment, the company need to have an explicit strategy and priority on open innovation and be ready for cultural change.
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