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Knowledge for Development Seminar Center for International Development

R&D Systems at IBM: Lessons from Flat-Panel Display Commercialization James McGroddy Consultant and former Senior Vice President of Research, IBM. Knowledge for Development Seminar Center for International Development Kennedy School of Government, Harvard University 11 December 2003.

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Knowledge for Development Seminar Center for International Development

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  1. R&D Systems at IBM: Lessons from Flat-Panel Display Commercialization James McGroddy Consultant and former Senior Vice President of Research, IBM Knowledge for Development Seminar Center for International Development Kennedy School of Government, Harvard University 11 December 2003

  2. Outline of Talk • Comments on Innovation Systems in general, Innovation-supporting Knowledge • The IBM Innovation System - focus on the front-end - “How do you figure out what to do ?” - the management system - some generalizable principles • Results: Some extra-base hits, focus on flat panel displays • Results: Some ground - outs and strikeouts • Some lessons-learned, some principles

  3. Innovation Systems • Complex, tangled, multiply connected, retrograde ….. • Path to success has many stages, many risks, lots of fog • Kinds of relevant Knowledge: -Indigenous - technical, subject matter - Exogenous - future market insight, pathfinding skills, etc. • Very different for different segments, even at a detailed level- agriculture, healthcare (pharma vs IT ), telecom/IT, the internet • Generalizing either Theory or Pragmatics a tough challenge - although some principles and lessons-learned can be extracted

  4. Innovation of What vs. Innovation of How • Many systems can be parsed into Muscle and the Nervous System • Exponential progress in IT, telecom have dramatically changed the performance and cost of the nervous system • Much innovation is the result of applying upgraded nervous systems to old muscle, displacing atoms with bits

  5. IBM R&D, focus 1990’s • No major change since then, “good” results • R, the front-end of D, and more • A true Central Research - ~$600m/yr, ~3000 people, 8 labs worldwide - program about 50% self-determined - 50% joint with company partners ( helps the & ) • Charged with Innovation across all segments

  6. Evolution of IBM Research through the ‘70’s invention and technology transfer + Joint Programs the ‘80’s + direct work with customers the ‘90’s +the white space

  7. The Value Chain Customer Solutions Application Frameworks Horizontal Applications Platforms .. DB, Transaction, etc Operating Systems Hardware Systems Processors, Switches, Routers IC’s,Storage, Lasers, Displays Silicon, Magnetics Electrons, Atoms, Mathematics Solutions Products Technologies JC McGroddy

  8. The Value Chain … How Far Can We See ? Customer Solutions Application Frameworks Horizontal Applications Platforms .. DB, Transaction, etc Operating Systems Hardware Systems Processors, Switches, Routers IC’s, Storage, Lasers, Displays Silicon, Magnetics Electrons, Atoms, Mathematics Solutions 1 - 2 yrs Products 5 - 10 yrs Technologies 10-20 yrs > 50 yrs JC McGroddy

  9. Growth of the IT Industry revenue 2X } Poker new stuff more old stuff } X Chess old stuff 0 0 5 year

  10. IBM Business Evolution(remember that this chart is from 1994 and needs to be “scored”) Chess Poker

  11. Planning / Execution / Evaluation - Annual Cycle • The Technology / Business Outlook - 5-10 yr view - process led by research, inputs from the business, customers, other external sources - technology, exploitation, impact on multiple sectors - shared and debated internally and externally - backdrop for strategies • Develop strategy focus - start, stop, grow, shrink • Prepare proposed plan, too large by ~ 10%, rank projects - lots of involvement of partners • Internal reviews to the top of the business, closure around budget • Quarterly highlight reviews internally and with partners • Annual structured assessment, lots of partner input, overall score • Capture key lessons learned • Repeat the cycle ……..

  12. Contention and Competition • The Customer is not Always Right • Research Investments are made ( partly) to create Alternatives • “The System” will often reject Alternatives - uncertainty, no short term payoff - competition • Alternative Paths may be needed

  13. Flat Panel Displays …. The DTI Story • Early ‘80’s, lots of candidate technologies - plasma, EL, LC in different forms, etc. • Outlook and low-end product strategy focused on centrality of FP displays in 1984 • Internal players/products: major CRT-based monitor group ( Raleigh), plasma”gas panel ( Kingston); IBM very vertical, internal • Studies between Research, product group, identified TFT/LCD as likely winner in 84. Issue is how, when to pursue. • Initial proposal in 1985: totally internal R&D, raise the mice in the elephants’ cage - rejected in favor of partnering with a Japanese consumer electronics partner. TFT/LCD at about 2 inches appearing.” Trickle Up” expected to win. • Small team, high level support (also many skeptics) chose Toshiba, negotiated joint R&D deal, very foreign to IBM culture • Within 6 months of beginning negotiations, 10/86, IBM engineers joined the Toshiba team at a new, first-pass, Toshiba pilot line

  14. Flat Panel Displays …. The DTI Story cont’d • 1987: new pilot line completed at IBM, team moves there • Rapid early successes, 9 inch prototypes, yet major skepticism within IBM - “wrong technology, wrong partner, blowing the schedule …” • 1989, despite naysayers, JV mfg company, DTI started - exploited Japan capital environment • The race is on … other vendors such as Sharp, Hosiden, tool industry developing, Japan focused • New technologies begin to appear, esp. Field Emission • Rapid progress leads to product commitment • First IBM Color Laptop announced 3/24/92, ThinkPads followed - IBM products had bigger, brighter displays - Ultimately grew to ~ $7B annual sales • In early-’90’s shortage, IBM, Toshiba, built strong market positions • By 2001, Korea major supplier, TV main focus, DTI sold

  15. DTI - IBM Initial Motivation • TFT technology would “ trickle up ” • Consumer Volume Mfg Experience • The “ Japanese Way ” • Cost of Capital

  16. DTI - later IBM Motivation • Rapid Pace of Progress • Effectiveness of the Relationship • Commonality of Goals • Cost of Capital

  17. IBM Toshiba products products OEM IBM Display Business Unit Toshiba Liquid Crystal Division DTI - array, cell - 3 plants - engineering IBM DBU development Toshiba development IBM Research Toshiba Research Display Technology Inc. - an IBM-Toshiba Joint Venture

  18. DTI - Lessons Learned • In a dynamic industry, winning in the “new stuff” is key to success. -New stuff often based on disruptive technology • Bold approach required for disruptive technologies - poker, not chess - separation, protection essential - a separate cage for the mice • Focused partnership with common, not complementary, goals and be a major help • Often, the technology will almost certainly develop in the market, while the winners are determined by management boldness and skill, and a dose of good luck.

  19. IBM - Some ground-outs and Strikeouts • Routers etc: NSFnet built with 3 generations of IBM routers. Threat to SNA kept IBM out of IP. An alliance might have helped. • PC processors and OS: Early equity investment in Intel not seen as alliance. Proposed investment in Microsoft rejected in 1986. • WDM and laser groups sold, to Tellabs, JDS Uniphase

  20. Inhibitors to Success in “New Stuff” • The new opportunity is small and uncertain • Budgets are fully committed to the current line • Incremental investment in the current line will return more • We don’t want to confuse our customers • The new technology is immature • The new approach competes with our mainstream approach and threatens a major revenue stream

  21. Market Sweetspots All -Optical LAN Telcos CIO’s - intrasystem

  22. Three Waves of Computing Power of choice moves to the end-user; ease-of-use is key Pervasive Personal Use Business operators buy the technology, impose it on the end-users Customers and users are the High priests Customers, users, were the high priests PC and C/S Mainframe Server 1960 2020 1980 2000

  23. Increasing Focus Worldwide Stepping up the pace New business models Importance of VC Increased risk acceptance Improving the linkage Joint funding/management Moving people across boundaries R&D in the Marketplace Setting a better agenda Balancing the portfolio Changing the culture Increasing external focus Looking toward impacts Application, Commercialization Basic, Applied Research Invention Reduction to Practice

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