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In the midst of a worse than expected economic downturn, Italy suddenly discovered that one of its companies had reached the status of worldwide excellence. Fiat Group Automobiles Spa (Fiat), the well-known Italian carmaker, was able to weather the economic storm and astounded the world with its expansion plans and its partnership with Chrysler during such a climate. President Obama and his auto industry task force claimed on March 30th, 2009 “Chrysler’s best hope for revival lies in a proposed partnership with Italy’s Fiat Spa”. Although the future prospects of Chrysler were still far from clear at the time, the reputation that Fiat has gained on an international level. What is remarkable to note here is that Fiat was not appointed by President Obama as Chrysler’s ideal partner because of its abundant cash flows or the cost-efficiency of its production system. One of the main driving factors behind the deal was the superiority of the Italian carmaker’s clean, fuel-efficient engine technologies. As Mr. Obama stated on April 30th “Fiat has demonstrated that it can build the clean, fuel-efficient cars that are the future of the industry, and as part of this agreement, Fiat has already agreed to transfer billions of dollars in cutting-edge technologies to Chrysler to help them do the same. Fiat is also committed to working with Chrysler to build new fuel-efficient cars and engines right here in America”. These technologies, which lay at the very heart of the Fiat-Chrysler deal, were mostly developed during the 90s by Centro Ricerche Fiat (CRF), the Fiat Group company in charge of R&D and technology development, under the visionary leadership of Gian Carlo Michellone, CRF’s CEO from 1989 to 2005. Mr. Michellone radically turned around CRF’s organization and innovation strategy in the early 1990s when the Italian carmaker - along with many other players in the automotive industry - was going through troubling times. This revolution allowed the Fiat Group to keep its “innovation engine” running despite the heavy downturn in the industry and to: (a) maintain and reinforce its in-house R&D activities (b) build and enlarge its networking capabilities within the automotive sector and across different industries and (c) complete and advance the development of the above mentioned fuel-efficient engine technologies. This presentation focuses on the organization and innovation strategy devised by Gian Carlo Michellone for CRF during the 1990s, which resembled and anticipated most of the underpinnings of what would become known as the Open Innovation paradigm that originated from Henry Chesbrough’s work. The CRF case is interesting because it demonstrates how Open Innovation can provide a strategic approach that enables a firm to protect its innovation capabilities from the risk of severe resource rationalizations during periods of crisis, and to confer a starting point to replicate them once the downturn is over.
Citation preview
FIAT – Open Innovation in a Downturn (1993-2003)
A Behind the Scenes ViewStrategy & Operations
Alberto Di MininIstituto di Management
Scuola Superiore Sant’Anna – Pisa (Italy)www.diminin.it
Federico FrattiniDip. Ingegneria Gestionale Politecnico di Milano - Italy
Andrea PiccalugaIstituto di Management
Scuola Superiore Sant’Anna – Pisa (Italy)
This presentation is based on: Di Minin, A., Frattini, F., & Piccaluga, A. 2010. Fiat: Open Innovation in a
Downturn (1993-2003). California Management Review, 52(3): 132-159.http://www.jstor.org/stable/10.1525/cmr.2010.52.3.132
• Why this case?• Methodology: illustrative case study• Research question: how do strategy and operation
co-evolve during the journey from Closed to Open innovation?
• Situating the case:Open Innovation in a Downturn
• The Open Innovation model applied– A different look at appropriability of innovation– R&D project management– Open innovation in a downturn
Organization of this presentation
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Three persons behind this story
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“the international company Fiat is the only route to survival for Chrysler.” March 30th 2009
“Fiat has demonstrated that it can build the clean, fuel efficient cars that are the future of the industry, and as part of this agreement, Fiat has already agreed to transfer billions of dollars in cutting-edge technologies to Chrysler to help them do the same. Fiat is also committed to working with Chrysler to build new fuel-efficient cars and engines right here in America.”April 30th 2009
Three persons behind this story
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“Only six automakerswill see the end of the worldwide financial downturn. The only way for companies to survive is if theymake more than 5.5 million cars per year”.
December 2008 (Fiat is approx 2 million cars..)
Three persons behind this story
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“I finally know howto call the model I have been using in all these years at CRF!”
Berkeley, 2005 in a conversation with Henry Chesbrough
Methodology based on great access toprimary sources (1993-2003)
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Source: CRF Internal presentation,1993
1989-1994: Preparing for the perfect storm.• 1994: Corporate R&D
down 70%• hunting for external
clients• pricing innovation
FIAT – Open Innovation in a Downturn (1993-2003)
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CRF’s revenues from outside the Fiat Group
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Does it look familiar?
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Source: CRF Internal presentation,2003
• Defensive goal: find a way to maintain FIAT’s technology base, in a time of shrinking budgets
• Ideas that we can trace back to Open Innovation central to this strategy
• From corporate strategy to operations.. Let’s see how.
• Strategy:– CRF new mission “instead of simply selling research, CRF is
dedicated to providing competitiveness to its customers as a matter of principle”
– Learning about Marketing of Technology Select the "right" projects to transfer Select the "right" clients.. To turn them into long term partners
A new level of AppropriabilityFor transferring competitiveness
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Selecting the “right” customer to work with
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Customer R&D expend. with CRF /Total CRF R&D expendi.
Customer R&D expend. with CRF /Tot. customer R&D expend.
• Turn customers into long-term partners
• Informal relationship preferred to market research
• Researchers with a briefcase
• Strategy:– CRF new mission “instead of simply selling research, CRF is
dedicated to providing competitiveness to its customers as a matter of principle”
– Learning about Marketing of Technology Select the "right" projects to transfer Select the "right" clients.. To turn them into long term partners
• Operations:– A matrix structure and Research Promotion Function– HR central to manage competences and high turnover– R&D Project portfolio management: cool&risky ideas + plug&play – The concept of “micro-clients”– Intellectual property management (the Bosch case)
A new level of AppropriabilityFor transferring competitiveness
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Selecting the “right” technology to be transferred is easier said than done
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• Strategy: CRF interpretation of Hamel and Prahalad (1994) –distinctive, standard, actual.
• Execution: The case of Bosch: “Fiat lost out on billions in potential revenue by selling the technology”
• Strategy:– Clients might not know what they want/ how to price it– Marketing of technology related to competitiveness:
C.C.C.P. (Competitiveness for Customers at Competitive Prices)
A different perspective on R&D projects
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Levitt’s 4 Levels: imagine having friends over for dinner
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The shopping list
The cooked meat
The main course; sides and wine
A nice dinner
• Strategy:– Clients might not know what they want/ how to price it– Marketing of technology related to competitiveness:
C.C.C.P. (Competitiveness for Customers at Competitive Prices)
• Operations:– Bottom up planning and evaluation. Microfoundation of
project management.The Project/output sheets– A new type of lab employee: Researchers, Project
managers, Marketers
A different perspective on R&D projects
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• Strategy:– A clear/extreme mandate– It takes time to implement– Entrepreneurial spirit
Open Innovation in a Downturn
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• Strategy:– A clear/extreme mandate– It takes time to implement– Entrepreneurial spirit
• Operations:– Leadership and commitment– Creative resource management (EU, clients)– Pressures on the organization and stress levels– Central role of planning: know what you transfer
Open Innovation in a Downturn
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The role of EU Projects
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• From €2 million in 1992 to €20 million in 2000• Organizational and strategic advantages:
– Training– Free benchmark exercises– Network of relationships
K€
European carmakers’ participation in the EU EUCAR V Framework Programme
• The role of the Open Innovation Champion:– Senior executive leadership critical to open up the innovation
process– What happens next?
• Business model alignment– Transferring competitiveness to external (and internal) customers– Can we transfer competitiveness to competitors?– The process starts (and sometimes ends..) with individual
researchers
• The relevance of organization– A complex transition: (HRM, IP, project management…)
Concluding Remarks:Relevance for Operations
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• Open Innovation as a bifocal strategy during tough times– OI as a response to shortermism in difficult times?– OI to both strengthen operational efficiency AND enhance R&D
effectiveness?• Tough times require tough leadership and anticipation
– External circumstances are triggers of change– ..but change that has been anticipated and with someone to direct change– The wake up call can arrive too late– What is the trigger of OI? goldmine? Fire? Both?
• Micro-tuning and adaptation for macro-change– Planning and implementing OI starts from people and projects..
Concluding Remarks:Relevance for Strategic Planning
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Thank You for Your AttentionAlberto Di Minin
www.diminin.it
..& if you liked this presentation you might enjoy reading the paper as well!
Di Minin, A., Frattini, F., & Piccaluga, A. 2010. Fiat: Open Innovation in a Downturn (1993-2003). California
Management Review, 52(3): 132-159.
http://www.jstor.org/stable/10.1525/cmr.2010.52.3.132
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