Where companies once guarded their research and development efforts in-house there is now a growing realisation that to access the best skills and knowledge they need to open their doors to partners. CEO talks to Dr Rick Harwig of Royal Philips Electronics about how its Open Innovation policy sets the tone for a more collaborative future.
Innovation is key to the sustained success of a company, regardless of the industry sector in which it operates. Product ranges, service delivery, business models and organisational structure can all change in response to new ideas, but opinions are steadily changing on how best to bring these ideas about and see them through to fruition.
While many companies are willing to engage external partners to take on non-core activities in their manufacturing operations, few have made such relationships to support their innovation processes, which are kept firmly behind closed doors. While it may be tempting for a company to think that it has the smartest people and the brightest ideas, by definition this assumption is almost certain to be incorrect.
Success in fostering innovation, therefore, could increasingly rely on a company’s ability to instill a more collaborative approach involving customers and business partners. The benefits of such a strategy may be great enough to justify a substantial rethink of how an organisation is structured, to allow it to respond to the many different factors that drive innovation.
One example is the push to deliver environmentally friendly technologies, a factor that encouraged a major business transformation project at one of the world's largest electronics companies, Royal Philips Electronics.
"We spend much more energy on sustainability now," says Dr Rick Harwig, chief technology officer for Royal Philips Electronics. "Our products are lighter, more energy efficient, and we have changed materials in some cases to improve efficiency. In 2007, we have achieved the position of Dow Jones Sustainability Index supersector leader in our market sector. In our key sector of lighting, we have energy-saving lamps that can help to avoid a lot of carbon emissions, and these are not only for homes and shops, but also for street lighting."
Philips can point to many examples of market-leading innovation in all of its business sectors – consumer lifestyle, lighting and healthcare. For instance, its bright ideas in LED floodlighting technology now underpin low-cost, high performance lighting solutions for many attractions, such as Buckingham Palace and the London Eye in the UK. This same technology, Harwig believes, could easily save 40-60% of energy costs for public street lighting, and give better colour performance.
"Huge savings are possible," says Harwig, who also believes that LED solutions "could take us a long way towards Kyoto." Similarly, as Philips has extended its scope into the healthcare market it has paved the way with innovative components and product design.
For instance, it has developed a leading range of professional equipment for medical imaging and diagnostic scans, as well as home healthcare applications such as cardiac telemonitoring systems.
Philips products have improved the procedure for taking biopsies, using needles that can be seen on imaging scans and guided more accurately to prevent unnecessary damage. It has also developed a new approach to the design of heavy diagnostic scanners for children in hospital, introducing a level of abstraction to the user experience that improves levels of patient comfort.
"We build a dynamic experience around it. Children see a dolphin holding its breath for a few seconds, just as they must do. The nurse directs them to the dolphin and they copy what it does, so they are not just getting instructions. Throughput improves and there is less need for sedation as the kids are more comfortable," explains Harwig.
These diverse examples of the innovation process at Philips show that the company’s approach is yielding success, but Harwig notes that these are the fruits of a major organisational change.
"We are in the midst of a huge transformation process as a company and as individual research teams. Philips has been a technology powerhouse for over one hundred years, but now we are becoming more of a market-led innovation company, though the goal remains the same – to improve the quality of people’s lives through the timely introduction of innovations."
Open for business
The company’s approach to innovation rests on the recognition of many changing dynamics in its key markets. "When the company started there was a technology push," notes Harwig. "Now we look at the needs of our consumers and professional customers in key sectors, such as lighting, and develop applications for both. Also, Europe and the US are focusing more on the creative aspects and technology design, less on manufacturing."
The Philips business model, which thrives on innovation, relies on the quality of insight into what the consumer and professional markets want from its products, so contact with these groups is a cornerstone of its R&D programme.
There is great emphasis on getting early stage feedback on technology proposals which contributes to further development of technologies. "The real crux of our development process is the ability to put technology in the hands of end users, so that their feedback is experiential, not merely hypothetical," says Harwig.
"We talk to our customers to find out what they need in life, but we can also see what happens when people feel these technologies in the home or professional environment. It improves our product development, as we can build better prototypes and concept machines."
Introducing new ways to get consumers – be they medical professionals or buyers of consumer electronics – involved in shaping the design process makes commercial sense and improves the chances of launching successful products. It also goes hand-in-hand with the company’s Open Innovation policy.
Open Innovation supports a radically different approach to the familiar model of closely guarded, in-house technology development. Its premise is that there are bright people outside Philips who can nevertheless contribute to the development of the company’s product if the right commitment and mechanisms for collaboration are in place.
"Innovation in today’s economy is the result of cooperation within companies, between companies and by companies in conjunction with universities and other knowledge-driven organisations."
To access the best minds and prepare the landing ground for new technologies in the market, Philips is teaming up with academic and industrial partners whose competencies complement its own R&D efforts. It does away with protectionist attitudes to innovation and intellectual property, embracing instead a cooperative approach that delivers speedier, more efficient R&D.
"Now, we are not vertically integrated, but operate in a more open, sophisticated way. We cooperate more freely with universities and we are building more links with them in each of our key global segments - the Americas, Europe and Asia - and our three key product areas. This is what we call the "brain bridge" platform," explains Harwig.
In the UK, Philips has built relationships with many universities, including Cambridge University, Southampton University, and University College London, which embed the company in the technology ecosystem. The brain bridge also extends across the globe, and Philips has been forging close ties with science and technology communities in China in particular.
Rapid response
The company has also reappraised its approach to managing development units, which now operate in smaller teams to improve their responsiveness, and has enhanced its service offering to other technology companies.
"We now have small units that can be run as start-ups. That is a very different way of working compared to ten years ago. Our campus sites have many small companies as well as multi-nationals, all of which are highly sophisticated. We offer better and cheaper services because we have geared up our innovation processes and made it easier to make partnerships," notes Harwig.
Philips is also at the heart of collaborative efforts through its presence in leading innovation centres, such as the High-Tech Campus in Eindhoven, the Netherlands, where some 75 companies and institutions are operating. Here, Philips is partner in the Center for Translational Molecular Medicine that is dedicated to supporting the development of new, personalised treatments for the main causes of mortality and diminished quality of life, such as cancer and cardiovascular diseases.
It also has a research unit in Cambridge, UK, and is building more partnerships across the brain bridge. "The collaborative approach in Cambridge has obviously been driven by the university, and we can leverage our regional presence to bring knowledge together from further afield. Emerging markets are very important now. Brazil, Russia, India and China are using more sophisticated technology. China, for instance, is skipping landline technology for telecommunications and going straight to wireless.
That means there are many opportunities for European companies," believes Harwig. Overall, the benefits of the transformation process have been quick to emerge, but the success is due to careful management and a keen eye for the pitfalls that such a large change can bring.
Harwig admits that business transformation can be a long and hard process. Philips started taking what he calls "drastic steps" five years ago, and has faced many tough decisions along the way.
"In the UK, after long deliberations, we closed our laboratory in Redhill after 50 years, and moved a small research group to Cambridge, where we are mainly working on wireless applications and bio-electronics."
Despite the hard choices, the benefits that have materialised are hard to decry. "We’ve doubled our new product sales," says Harwig. More importantly, perhaps, the company has dramatically changed its platform for future innovation, and believes that it has greatly improved its ability to expedite efficient, fruitful R&D and respond swiftly to the needs of its customers.
