CHARACTERISTICS OF FIRM OFFERINGS...Pioneers of a new globally integrated model Tata Communications (2012) –Born in India –Dispersed organisation with no headquarters –Distributed

INSEAD Innovation Breakfast Series

April 26th, 2015

Professor Yves Doz

The Solvay Chaired Professor of Technological

Innovation

Professor of Strategy and Management (emeritus)

INSEAD

(With Keeley Wilson) Senior Research Fellow

Adapted from ‘’Managing Global Innovation’’,

(HBRP, 2012)

© Yves Doz & Keeley Wilson, 2012

Thanks to Booz Allen,

(and to Nokia, Schneider Electric, Solvay, Timken, and Whirlpool)

“Standing on the shoulders of Giants”

Gunnar Hedlund

Sumantra Ghoshal

CK Prahalad

The nature of innovation is changing

Traditional consumer markets

in developed economies

Specialisation between industries

based on distinct knowledge

Brain-power in US, Japan &

developed Europe

Limited external pressures (local

regulations & standards)

R&D and innovation kept largely

in-house or with trusted local

suppliers

Focus on developing and selling

separate products & services

Huge new consumer markets opening

in emerging economies

Increasing knowledge convergence

across industries

Locus of brain-power shifting to

emerging economies

Growing external pressures

(sustainability concerns, ethics, etc.)

Greater move towards offshore

outsourcing and open innovation

across the value chain

Increasing move towards

conceiving and selling broader

‘solutions’

Forces leading to greater knowledge diffusion & diversity

We Found Many Factors That Were Relevant

But Not Decisive Nor Clearly Sustainable

Advantages:

• Good transport and communications infrastructure

• Ease of moving products and people in and out of

Country

• Technical education

• Reliable legal system and IPR protection

• Pro-business government policies

• Efficient public administration

• Good, responsive support from government agencies

• Attractive lifestyle amenities

Engineering and Design Capability /

Close understanding of customer

application / Design Center: S. Jose CA

Process Technology

R&D in Bipolar and

BCD; Design

competence on

analog and mixed

chips

: Milan, Italy

Lead Customers R&D and

Engineering (Seagate,

Western Digital): US (namely

California, Colorado)

Process Technology R&D

in BICMOS (mixed) and

CMOS (digital);

Manufacturing (Front End):

Grenoble, France

Customers’ Manufacturing

Technology:

Far East

Design of ‘packaging’,

testing and final assembly

(Back End) capability:

Malaysia, Singapore

Engineering and

Design skills in

digital servo

controllers - JV with

SSD: Dublin, Ireland

Joint Design center with

Seagate:Scotts Valley, CA

Coordination and

strategic capability:

Geneva, Switzerland

Engineering and

Design skills in fast

micro-.processors:

Bristol, U.K.

JV for new

microprocessor

development with

Siemens, Germany

Competence on R/W

technology - JV with

EXAR, CA

A Global Knowledge Jigsaw: e.g., ST Microelectronics’ HDD controller chips circa 1993

© Doz, Santos, Williamson, INSEAD, 2004

CAN YOUR ORGANIZATION DO THIS ?

Pioneers of a new globally integrated model

Tata Communications (2012)

– Born in India

– Dispersed organisation with no

headquarters

– Distributed top management

team

– CEO based in Singapore

– Head of voice business in

Montreal

– Head of data business in

London

– Head of services business in

New Jersey

– Head of strategy in Mumbai

– In just over a decade has grown

to carry

– 60% global mobile traffic

– 20% international voice

traffic

– 6% global internet traffic

– Owns 25% global submarine

fibre optic cables

India: Bid/pricing &

knowledge

management centre of

excellence

Montreal: Wholesale

voice and roaming

expertise

Singapore: Data racks

and cloud services

centre

London: Hotspot for

large data hungry

corporates

New Jersey: Subsea

engineering expertise India, South Africa &

Russia: Challenging

emerging market

knowledge

Hong Kong:

Network services

knowledge

Not just R&D and innovation, now the whole company

The Development of the Traditional Multinational Corporation:

Projecting Home-base Knowledge and Competitive Advantage

1. Innovating at home

Home base

Porter,

(Marshall)…

2. Riding the product

lifecycle internationally

• Sequential FDI

• Home base as “lead”

Functional Structure

Hymer, Vernon…

3. Balancing integration and

responsiveness

Global Transnational

Multidomestic

Multifocal

Matrix Structure

Hedlund, Doz & Prahalad, Bartlett & Ghoshal

© Yves Doz, INSEAD, 2008

The Traditional

Multinational

Building Global Advantage

Home-Country

Leadership

-Competence

-Cost

-Competition

-Customers

Learning

From the World

-Accessing

-Integrating

-Leveraging

The New

Metanational


The Metanational Process

Sensing Units

Integrating

Leveraging

Accessing

Magnet

Operations

the world

of leadership

the world

of entrepreneurship

the world

of management

idea

opportunity

problem

© Doz, Santos, Williamson, INSEAD, 2001

A manifesto:

2006 Survey. INSEAD & Booz Allen

(Approx. 170 MNCs, $70B of R&D spending)

Three broad strategic findings:

1.High awareness of importance of optimal

global innovation “footprint” and potential

for metanational innovation

2.High investment in globalizing footprint

(China, India, etc.)

3.Limited returns (at best reverse innovation)

Changing Drivers of R&D Internationalisation

2000s

Legacy

11%

Close

To HQ

7%

Proximity

Production

13%

Market &

Customer

Insight 19%

Skills

Capabilities 22%

Subsidies

incentives 14%

Low

Cost skills 9%

1970s

Legacy 29%

Skills

Capabilities 16%

Proximity to

Production 18%

Close to

HQ 14%

Market

Customer

10%

Subsidies

incentives

9%

1980s, 1990s

Legacy 17%

Skills

Capabilities 16%

Close to

HQ

10%

Proximity

Production 17%

Market &

Customer

Insight 19%

Low

Cost skills

2%

Subsidies

incentives

13%

© Yves Doz & Keeley Wilson, INSEAD, 2006

Source: ‘Innovation: Is Global the Way Forward?’ INSEAD & Booz Allen Hamilton, 2006

“A French mathematician does not think in

the same way as a German, a Russian or a

Japanese one, they all share the same

universal language, but they have different

ways to approach it.”

Cedric Villani.

Fields Medalist, 2010

“All knowledge is complex”

Haridimos Tsoukas

This is a problem!

2006-2010:Fifty focused theoretically sampled

case studies:

• GSK

• Novartis

• Hewlett Packard

• Intel

• General Electric

• Infosys

• Tata Comm

• General Motors

• Samsung Electronics

• Safran/SNECMA

• Safaricom/Vodafone

Xerox

Rio Tinto

Schneider Electric

EADS

Citibank

Disney

Siemens

Telefonica

Cisco

IBM

MultiDimensional Imaging

Tata Consulting

L’Oreal

SEB/Moulinex

Embraer

PSA

and

many others!

Co-located Dispersed

Complex

Knowledge

Explicit

knowledge

How to transcend the knowledge complexity and

dispersion trade-off ?

Knowledge

Complexity

Knowledge

Dispersion

.

.

© Yves Doz, INSEAD. Adapted from Y.Doz & K.Wilson, Managing Global Innovation, HBRP, 2012

What is your innovation footprint actually?

Organizing Global Innovation

PART 1 : Optimizing the Innovation “Footprint” ?

The Optimized Innovation Footprint: Why?

Go to locations

for new knowledge &

experimentation

Discovery

Access & integrate diverse local

knowledge, capabilities & partners to

complete an innovation jigsaw

Complementarity

Lower costs via

increased

productivity

Substitution

Proportions of value

diamond change for

different firms as

nature of innovation

differs across

industries


The optimised innovation footprint: How?

Complex

Typ

e o

f K

no

wle

dg

e

Explicit

Embedded

Full

Immersion

Distance

Mode of Access

Experiencing

Foraying

Attracting

Brick and mortar investments may not be needed

Optimizing the Innovation Footprint: Where?

(Value-Cost)

D (optimal)

D (Degree of Dispersion = “footprint”)

Cost

Value

© Doz,Santos, Williamson, INSEAD, 2004

Assessing Value and Cost Trade offs

as a Function of Knowledge Dispersion

V

c

€

V-C

D

Geographical Knowledge Dispersion (e.g., high-speed drug lead screening vs. flat panel displays)

•STRONGLY

CO-LOCATED

EXCELLENCE

•DISPERSED

COMPLEMENTARY

SOURCES OF EXCELLENCE A CONTINUUM OF SITUATIONS

V

C

€

V-C

D

The nature and mobility of needed knowledge (e.g., perfumes vs. software code)

Strategic choices (e.g., Intel vs. STMicroelectronics)

Heritage and competence trajectory (e.g., Toyota vs. GM )

Distributed entrepreneurship and serendipity (e.g., HP Singapore, Fuji Xerox, Glaxo-

Japan Tobacco) © Doz,Santos, Williamson, INSEAD, 2004

The value approach at Novartis

Siena, Italy

Not-for-profit

Vaccine

development

Cambridge, MA

Hub accessing

external partners

(MIT, hospitals)

Complementarity

Discovery

Basel, Switzerland

Hub -traditional

CoE drug discovery Singapore

Infectious diseases,

New b-model

La Jolla, CA

Genomics Changshu, China

Manufacturing &

process technology

Shanghai, China

Hepatitis

Horsham, UK

Gastrointestinal

diseases

San Francisco, CA

Discovery

chemistry

Tsukuba, Japan

Technical R&D

Hyderabad, India

Biometrics,

Electronic data

management

East Hanover, NJ

Drug discovery

Fort Worth, TX

Ophthalmology

Getting the best of both:High value, low cost?

So as to minimize ’distance’:

Access to other knowledge

pieces:

• Geographic distance

• Cultural/contextual distance

• Knowledge complexity

Maximize Minimize

Value of…. Cost of….

‘Rooted’

Co-located

Knowledge

Sources


Development

Manufacturing

3 M Du

Pont

Nomadic vs. Rooted Footprints:

A Tale of Two Products

Printers ‘Cartridges’

(2002) (2002)

SGP

China

Malaysia

Thailand

U.S

U.S

Manufacturing Research,

Product creation

Design for

Manufacturing

U.S

SGP

Puerto

Rico

Ireland

Research,

Product creation

EQT

suppliers

Bayer


GM’s Global Innovation Network (c. 2006)

Australia

USA

Mexico

Brazil

China

Japan (Suzuki,

Isuzu, Fuji)

Italy (FIAT)

United

Kingdom

Germany

Sweden

India

Global

Management

Group Canada

Being There?

Linking and

Leveraging?


The Perils of open/collaborative Innovation:

Pixtech’s Alliances

Distribution

Sumitomo

Research

F.E.D. Alliances

Futaba Motorola

Raytheon

TI

LETI

Research & Development

PixTech

Manufacturing

Unipac

Materials Tech.

Rhone-Poulenc

Nichia

SAES Getters

Capital

US Financial

Market


Emergency Medical

monitoring

Military Vehicle & aircraft

On board communications,

avionics

In-flight entertainment

Car navigation/ GPS mapping

Intelligent Appliances,

domotics

Computer CRTs

Hi-speed video games,

interactive TV

Credibility

Vacuum

technologies

Semiconductor manufacturing process skills

Specialised Application know- how, contracting

& bidding

Low cost mass

manufacturing

Very high quality/ reliability design & manufacturing

CO

MP

ET

EN

CE

AC

CE

SS

AN

D A

CC

UM

UL

AT

ION

MARKET DEVELOPMENT APPLICATION MIGRATION

PixTech’s Strategic Development Plan

Laptop

Mitsubishi,

Micron

Futaba

Motorola

Raython

Texas

Instruments

PixTech

United

Microelectronics


Organizing Global Innovation


PART 2 : Optimizing Knowledge Mobility ?

The advantages of Co-Location

(“here, together, now”)

random encounters

“down-the-corridor” search

frequent interaction, instant feedback

shared physical context

very high bandwidth communication

effective non-verbal language

efficient mutual adjustment

dealing with “tacitness”

Sharing through Socialization, Melding by Working Together


The advantages of Confluence

(“being in-tune & in-sync”)

shared language

shared stock of knowledge

shared system of meaning / learning style

high probability of unequivocal understanding

effective verbal language

efficient alignment

dealing with “embeddedness”

Ease of dialogue

Sharing by Externalization, Melding by Combination


Knowledge Complexity

“Tacitness” (Only revealed in action)

“Embeddedness” (Context-dependency)

‘Scale’ (Individual vs. Organisational)

‘Speed’ (Time compression)

Knowledge complexity How easy to find? How messy? How sticky?


Not all Knowledge is equally easy to move

“Creep into the Mind, feel the Heart” • Movements/ quality in Japan, environment in Germany

• Cultural assumptions (Fashion, Music, Arts)

• R&D approach

“See through the Eyes” • Vision statements

• Management processes

• Customer Service Manuals

• Consumer Behavior Reports

“Jump into the Shoes” • Practices and skills

• Simple procedural routines

“Take a Picture” • Technical blueprints

• Patents

Explicit Knowledge

Endemic Knowledge

Simple

“See & Study”

Experiential Knowledge

“Experience & Practice”

“Study and Live”

Existential Knowledge

“Feel and Live”

Complex


Endemic Knowledge

Universal Knowledge

The Mobility Challenge

Knowledge Channels

Tacit collective context-dependent knowledge is

hard to:

• Bound

• Move

Y1

Y2

Y3

X

It will be ‘changed’ when brought to a new context

• Re-interpreted

• Made to interface with other knowledge

?

Y2

Y1’

X’

The Knowledge Mobility Paradox :

The most valuable knowledge is the hardest to share and integrate

© Doz & Santos, INSEAD working paper, 1997

Knowledge flows?

Knowledge does not flow ...

…‘Carriers’/ ‘Packages’ of knowledge flow

‘Packages’ of Knowledge

Data, information, ... models, components, tools, machines, ..., people

Knowledge re-creation by the ‘receiver’ De-contextualization (‘sender’) and Re-contextualization (‘receiver’)

Knowledge ‘transfer’ as a dialogue ...

… about contexts and the object of knowledge

Understanding the NIH Syndrome!

Knowledge sharing: Aim before you shoot! • How complex is the piece of knowledge?

• How tacit?

• How context-dependent?

• What is the context of the ‘receiver’?

• How close / familiar? How may knowledge fit in the ‘receiver’s context?

• Can we “de-contextualize” the piece of knowledge?

• What “carrier” to select and prepare?

• Information, Manual ...Tool, Machine, Plant ... Simulator ... People

• How much knowledge on your context to share with the ‘receiver’?

• Then, send the carrier of knowledge.

Building Global Innovation

PART 1 : Optimizing the “Innovation Footprint” ?


PART 3 : Optimizing Communication and Co-operation

Without Knowledge Integration,

Access does not create value

And we observed Knowledge Integration faces

significant barriers:

– Inadequate connection mechanisms

– Lack of understanding between different contexts

– Inherent difficulties in transferring & integrating

complex knowledge

– Lack of receptivity, collaboration & openness

Inadequate connection mechanisms?

ICT systems for

sharing codified

knowledge

IT systems to

connect

complex

knowledge

holders

Networks

connecting sites

& teams

• Incompatible IT

systems

• Large database

repositories

Barriers

• Isolated experts

• Reinventing wheel

• Extreme localism –

lack of connections

Solutions

• IT systems: ubiquitous &

integrated into workflow, with

obvious benefits to users

• Leverage rich infrastructure to

connect dispersed groups/people

e.g., communities of practice

• Use as problem solving tool

(obvious benefits to users)

• Dense webs of cross-site

reporting & communication

• Relays between sites

Sharing complex knowledge?

•Difficult to transfer & integrate as rooted and diffuse (e.g., Disney

Europe) and home centric projection

•NUH – “Not Understood Here”

•Critical role of multicultural managers:

– Multicultural people with experience of living or working in different

countries, often since early childhood

– Deep appreciation for and understanding of the subtleties of

different social norms, behaviour and beliefs

– They act as bridges between various contexts

•Survey showed most companies recognised people with multi-

cultural experience were better at interpreting, absorbing & using

new knowledge from very different places

•However, very few companies are actively trying to build a cadre of

multicultural managers through career structures and rewards

4

9

Teams in Multinational Organizations

Building Global Innovation



PART 3 : Optimizing Communication and Co-operation

PART 4 : Optimizing Absorptive Capacity

Implications for strategy and policy of:

• Internationalising companies

• National and Regional development

authorities

• Subsidiaries of multinational companies

Implications for Internationalising companies

What resources do I bring? How well can I trade

them for Knowledge?

How can I extract valuable knowledge from

existing relationships (distributors, customers,

partners, etc…)?

What critical elements of value adding activities

do I need to master to remain essential to value

creation?

How do I make myself a partner of choice for

MNCs?



• States and Regional Development Authorities

• Subsidiaries of multinational companies

Implications for national and regional

development:

• Competing on cost only is a self-defeating proposition unless one is willing to stay poor.

• Raw materials’ abundance buys time, of course…

• But over the medium term, knowledge hubs are needed…to attract higher value added MNC activities…and allow the international development of national firms…

Singapore has logistics, commercialisation, health care…

India has software, car components…

• Integrity (vs. patchy and spread out too thin or too narrow)

• Collective Learning and Dynamic Capability Building (shadow of a shared local future).

• Active and purposive linking to other knowledge cores

• Knowledge cores are also sociological entities which create a shared mindset and path dependency, hence the risk of inertia and the innovative value of connecting clusters.

• Co-location advantage and Linked advantage discrimination • vs. Fully self-sufficient local clusters and dispersed networks

• Smart discrimination between co-location and linkage as a function of knowledge network structure of industry/product.

What makes for a robust “knowledge core”?

What needs or not be co-located:

The Semiconductor Knowledge Network

Process

Design

Circuit

Design

Product

design

Modelling

Wafer fab

Assembly

Test

Packaging

Design

Design

Tools

Packaging

Devt

Equipment

Maintenance

Application

Engrg

Serving the

Customer

Modelling

Software

CAD

Photomask

CAM

Fab Mfg

Tech Devt

Mat Devt

Mfg

Planning

Equipment

Design

© Doz,Santos, Williamson, INSEAD, Economic Development Board of Singapore, 2012



• States and Regional Development Authorities

• Subsidiaries of Multinational Companies

Be Entrepreneurial, don’t wait!

• What unique resources and skills can I contribute to the

company, beyond what I need to operate successfully

here?

• How can I “root” my activities in local knowledge and

capabilities? (Avoiding the “long thin arm” syndrome)?

• How do I gain “voice” in corporate choices? How do I

effectively represent and communicate what my country

has to offer?

• How do I grow the contribution of my subsidiary to global

knowledge creation over time?

“Think Local, Act Global”

One last observation:

Documents

CHARACTERISTICS OF FIRM OFFERINGS...Pioneers of a new globally integrated model Tata Communications (2012) –Born in India –Dispersed organisation with no headquarters –Distributed