Radical Collaboration

Lessons from IBM's innovation factory

by Steve Hamm

SPECIAL REPORT

Inside Innovation

• Editor's Note
• New Innovation Tools and Trends Worth Trying
• Social Networking Graduates and Hits the Job Market
• Radical Collaboration
• Feeling Trashed on the Web?
• Six Sigma Kick-Starts Starwood
• A Formula One Designer Shifts Gears
• Pushing the Boundaries of Design
• Nokia's Global Design Sense
• Eco-Chic: How Hot is Their Air?
• September 10, 2007 Issue of BusinessWeek

An IBM factory changing room.

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Bernard Meyerson, Head of IBM Alliances. Steve Pyke

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How ibm makes radical collaboration work.

By late 2003, IBM's decision three years earlier to pump $5 billion into its chip business wasn't looking so smart. The division had lost more than $1 billion in 2002 and was on its way to losing $252 million more in 2003. Investors urged Big Blue to quit, but that wasn't going to happen. IBM saw leading-edge chip technology as vital to keeping its lead in the highly profitable business of making powerful server computers. Still, clearly, something had to be done.

That's why John Kelly, who then ran the semiconductor division, summoned 10 executives to IBM's chip factory in East Fishkill, N.Y. Kelly argued it was time for a new strategy. IBM needed to share its most advanced semiconductor research with a few key allies. 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. Kelly expected pushback from his people, and he got it. "It was a real struggle. We had never thrown our doors open before," recalls

Bernard Meyerson, who then ran research and development for the chip division and now manages alliances. "We could all envision nightmare scenarios of a decade of research value being lost."

After two hours of heated debate, Kelly prevailed. 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.

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.

In an era of fierce competition, it pays to innovate communally.

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.

Forget the cookie cutter. Get out the chainsaw.

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.