Enterprise Innovation Ecosystem: Theory and Practice 9819933730, 9789819933730

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Jin Chen

Enterprise Innovation Ecosystem Theory and Practice

Enterprise Innovation Ecosystem

Jin Chen

Enterprise Innovation Ecosystem Theory and Practice

Jin Chen School of Economics and Management Tsinghua University Beijing, China

ISBN 978-981-99-3373-0 ISBN 978-981-99-3374-7 (eBook) https://doi.org/10.1007/978-981-99-3374-7 Jointly published with Science Press The print edition is not for sale in China Mainland. Customers from China mainland please order the print book from: Science Press. © Science Press 2023 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publishers, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publishers nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publishers remain neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Contents

1 The Concept of Innovation System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Innovation: Origin and Paradigmatic Evolution . . . . . . . . . . . . . . . . . 1.1.1 Concept and Origin of Innovation . . . . . . . . . . . . . . . . . . . . . . 1.1.2 The Evolution of Innovation Paradigm . . . . . . . . . . . . . . . . . . 1.2 The Epistemology of Innovation System . . . . . . . . . . . . . . . . . . . . . . . 1.3 The Evolution of the Innovation System . . . . . . . . . . . . . . . . . . . . . . . 1.3.1 National Innovation System . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.2 Regional Innovation System . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3.3 Industrial Innovation System . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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2 Enterprise Innovation System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 The Origin of Enterprise Innovation System . . . . . . . . . . . . . . . . . . . . 2.2 The Connotation, Structure and Characteristics of Enterprise Innovation System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2.1 The Connotation of Enterprise Innovation System . . . . . . . . 2.2.2 The Structure and Characteristics of Enterprise Innovation System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 The Evolution of Enterprise Innovation System . . . . . . . . . . . . . . . . . 2.3.1 The First Generation: The Innovation System Centered on Internal R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.2 The Second Generation: Innovation System Based on Collaboration/Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3.3 The Third Generation: The High Strategic Management-Orientated Innovation System . . . . . . . . . . . . . . 2.3.4 Fourth Generation: Innovative Ecosystem . . . . . . . . . . . . . . . 2.4 Enlightenment of Enterprise Innovation System . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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3 Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 The Background, Significance and Paradigm Evolution of Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.1 The Background of Innovation Ecosystem . . . . . . . . . . . . . . . 3.1.2 Research Significance of the Innovation Ecosystem . . . . . . . 3.1.3 Paradigm Foundation of the Innovation Ecosystem . . . . . . . . 3.1.4 Paradigm Evolution of the Innovation Ecosystem . . . . . . . . . 3.2 The Connotation and Characteristics of the Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.1 The Connotation of the Innovation Ecosystem . . . . . . . . . . . . 3.2.2 The Characteristics of Innovation Ecosystem . . . . . . . . . . . . . 3.3 Knowledge Structure and Clustering of Innovation Ecosystem Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.1 Interpretation and Description of Research Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.2 Knowledge Structure of Innovative Ecosystem Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3.3 Research Clustering of Innovative Ecosystems . . . . . . . . . . . 3.4 Research Frontiers and Theoretical Frameworks of Innovative Ecosystem Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.1 Innovative Ecosystem Research Frontier . . . . . . . . . . . . . . . . . 3.4.2 Theoretical Framework for Innovative Ecosystem Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Evolution and Synergy Mechanism of Innovative Ecosystem . . . . . . 3.5.1 Evolution of the Innovation Ecosystem . . . . . . . . . . . . . . . . . . 3.5.2 Synergistic Mechanism of Innovative Ecosystem . . . . . . . . . 3.6 Prospects for Innovative Ecosystem Research . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Enterprise Innovation Ecosystem Based on Core Competence . . . . . . 4.1 The Origin and Connotation of Core Competence . . . . . . . . . . . . . . . 4.1.1 The Origin of Enterprise’s Core Competence . . . . . . . . . . . . . 4.1.2 Connotation and Measurement of Core Competence . . . . . . 4.2 The Architecture and Management Process of Core Competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2.1 Basic Architecture of Core Competence . . . . . . . . . . . . . . . . . 4.2.2 The Management Process of Core Competence . . . . . . . . . . . 4.3 Key Elements of Core Competence Management . . . . . . . . . . . . . . . . 4.3.1 Core Competence Elements Focus—Core Technology and Technology Capabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3.2 Core Competency Management Support—Non-technical Elements . . . . . . . . . . . . . . . . . . . . . .

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4.4 Duality of Core Competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.1 Basic Characteristics of Core Competence . . . . . . . . . . . . . . . 4.4.2 The Paradox of Enterprise Core Competence in Dynamic Environment: Core Competence and Core Rigidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4.3 Basic Form of Core Rigidity . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5 Construction of Enterprise Innovation Ecosystem Framework Based on Core Competence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5.1 Core Competence Paradox and Open Paradox . . . . . . . . . . . . 4.5.2 Research on the Evolution of Enterprise Innovation Ecosystem Based on Core Competence . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Corporate Innovation Ecosystem Based on Core Competence Case Study—International Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1 The Case of Apple Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.1 The Company Profile and Development of Apple Inc. . . . . . 5.1.2 Core Competence Foundation of Apple’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.3 Construction and Development of Apple’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.1.4 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2 The Case of Siemens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.1 The Introduction to Siemens . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.2 The Core Competence Foundation of Siemens’ Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.3 Construction and Development of Siemens’ Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.2.4 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3 The Case of Procter and Gamble Company . . . . . . . . . . . . . . . . . . . . . 5.3.1 The Development of Procter and Gamble and the Evolution of the Global Innovation System . . . . . . . 5.3.2 The Core Competence Foundation of Procter and Gamble’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . 5.3.3 Building and Development of the Innovative Ecosystem of Procter and Gamble . . . . . . . . . . . . . . . . . . . . . . 5.3.4 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.5 Microsoft Corporation Introduction and Development . . . . . 5.3.6 The Core Competency Base of Microsoft’s Innovative Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.7 Building and Development of Microsoft’s Innovative Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.3.8 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 Google Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.1 Google Company Introduction and Development . . . . . . . . .

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5.4.2 The Core Competency Base of Google’s Innovative Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.3 The Construction and Development of Google’s Innovative Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4.4 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Case Study on Enterprise Innovation Ecosystem Based on Core Competence—Domestic Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 The Case of Founder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.1 Introduction and Development of Founder Group . . . . . . . . . 6.1.2 The Core Competence Foundation of Founder Group’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.3 Construction and Development of Founder Group’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1.4 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2 The Case of Haier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.1 Introduction and Development of Haier Group . . . . . . . . . . . 6.2.2 The Core Competence Foundation of Haier Group’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.3 Construction and Development of Haier Group’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2.4 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 The Case of CSR Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3.1 Introduction and Development of CSR Group . . . . . . . . . . . . 6.3.2 The Core Competence Foundation of China South Railway Group’s Innovation Ecosystem . . . . . . . . . . . . . . . . . 6.3.3 Construction and Development of China South Railway Group’s Innovation Ecosystem . . . . . . . . . . . . . . . . . 6.3.4 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4 The Case of Huawei . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.1 Introduction and Development of Huawei Company . . . . . . . 6.4.2 The Core Competence Foundation of Huawei’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.3 Construction and Development of Huawei’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4.4 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5 The Case of Midea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.1 Introduction and Development of the Midea Group . . . . . . . 6.5.2 The Core Competence Foundation of Midea Group’s Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.3 Construction and Development of Midea Group Innovation Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5.4 Case Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Chapter 1

The Concept of Innovation System

Science and technology innovation activities keep breaking through the boundaries of regions, organizations and technologies, and evolve into competition in the innovation system. The innovation strategy has become an increasingly important indicator of the overall national strength in the global competition. [1] Xi Jinping

In the transition of economic development, innovation is the key to sustainable development in future China, and it is also the only way to turn “Made in China” into “Made by China”. Innovation is embodied in the successful development and utilization of new ideas. Categories of innovation include product/service innovation, process innovation, technology innovation, and management innovation. In the age of knowledge economy, innovation is the silver bullet for companies to win in uncertain complex environments. The complexity and uncertainty of the environment will have an impact on the type of innovation, degree of innovation, and organization form. The higher the degree of matching and optimization among these factors, the more evident the positive effect on innovation performance will be [2]. Innovation can enable companies to better survive the economic downturn and enable organizations to achieve their goals more efficiently. Whirlpool and P&G both achieved sustainable development through innovation and innovation management. The object of innovation management has gradually shifted from closed product and process innovations to open business model innovations, from progressive innovation to breakthrough innovation, and from the national innovation system to the innovation ecosystem [3].

1.1 Innovation: Origin and Paradigmatic Evolution 1.1.1 Concept and Origin of Innovation The history of the civilizations’ evolution and the progress of society is a history of innovation-driven development. Over the years, it have been technology innovation and technology progress that promote global development and improve the © Science Press 2023 J. Chen, Enterprise Innovation Ecosystem, https://doi.org/10.1007/978-981-99-3374-7_1

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country’s competitive advantages, individual living standards and social structure. The improvement of tools, technological innovation, and advancement of ideas have driven the continuous evolution of society from agricultural civilization, industrial civilization, and evolution from information civilization to intelligent civilization. Individuals, organizations, communities, industries, and countries are all embedded in the advancement of innovation and achieve mutual development through mutual interaction, dependence, and symbiosis. However, it was not until 1912 that “innovation” was put forward by scholars as a real issue of development, and since then the hundred years of human history to learn about innovation, understand innovation and apply innovation began. The concept of innovation originally originated from the 1912 book The Theory of Economic Development of Joseph Alois Schumpeter, an American-Austrian economist. He regarded the transformation of production technology and production methods as the core factors that affect economic development, regarded this kind of innovation and the related element combinations as the core characteristics of capitalism, emphasizing the role of entrepreneurs in the process of innovation and economic development. In Schumpeter’s view, innovation is the core driving force behind economic development. He believes that the core of innovation is to establish a new production relationship function, so as to achieve a new combination of production factors and production conditions, and to introduce this “new combination” into the existing production system [4]. In order to understand the nature of innovation, Schumpeter proposed five aspects of innovation [5]: 1. Creating a new product; 2. Adopting a new production method; 3. Developing a new market; 4. Acquiring and master new sources of raw materials or semi-finished products; 5. Implement a new corporate or industrial organization. However, the innovation that Schumpeter proposed was limited to new changes in the production process and only emphasized the commercial application of new technologies. Moreover, Schumpeter confined the subject of innovation to entrepreneurs, ignored the influence of innovation behaviors of other economic entities (such as governments, universities, and various intermediary agencies) on the development of enterprises. In addition, Schumpeter did not analyze from the perspective of microscopic system how companies built innovative organizational systems and how to improve the effectiveness of innovative organizational systems in a turbulent external environment. He combined economics and technology, emphasized that innovation not only enables companies to achieve profit growth, but also provides the driving force for economic development. Schumpeter’s innovation theory were supplemented and developed by further research of later innovation theories [6]. Afterwards, scholars from different fields such as Christopher Freeman, Richard Nelson, James Utterback, David Teece, Eric von Hipple, Clayton Christensen, Henry Chesbrough, focused on innovation research and are typical representatives of innovative research. This is not only because innovation has been a critical measure of enterprises to adapt to the external business environment in real practice, but also because innovation is closely related to the birth and adoption process of new things [6].

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In the macro-level research of innovation, Freeman has absorbed Schumpeter’s technology innovation economics thoughts, and has increasingly noticed the impact of institutional environment on technology innovation and economy. He opened up a new research area of the national innovation system [7, 8]. In the framework of this field, the national innovation system is a system where governments, companies, universities, research institutes, and intermediary agencies seek a series of common social and economic goals and constructively interact with each other, using innovation as a key driver of change and development. The main function of the national innovation system is to give the role to the government, optimize the allocation of innovative resources, and coordinate national innovation activities. Nelson insists on the integration of theoretical, historical, and institutional analysis to explore the dynamic correlation between technology innovation and economic development, analyzes the technological innovation process in a non-equilibrium and dynamic complex economic system that exists in reality, and opens up a new perspective on technological innovation theory [9]. He did not only keep Schumpeter’s innovative research tradition, but also flexibly learned from and used the basic ideas of Darwin’s biological evolution theory and Herbert Alexander Simon’s theory of limited-rational organization behavior. He incorporated modern enterprise theory into the macroeconomic growth theory system and proposed a micro-to-macro “technology-searchenvironment choice” technology paradigm. Nelson believes that the choice of each technology is based on some specific knowledge, and that enterprises are in possession of key knowledge which is embodied in the company’s operational practices and organizational capabilities; in the course of business evolution, technological change and organizational change are intertwined. He also discussed innovations made by companies in response to changes in the environment and believed that innovation results can only be achieved if they are in harmony with the environment. Innovating is not isolated but closely related to the subject’s knowledge and environment. Utterback believes that only the overall understanding of innovation will make a company prosperous. He uses the product life cycle as a methodological tool to dynamically analyze innovation behavior and discusses the entire process of a fundamental product innovation and the important relationship between product innovation and process innovation [10]. He and Abernathy jointly proposed the dominant design theory, using the U-A curve to express the dynamic model of product innovation and process innovation [11], and showed a profound insight into the macro management of industrial innovation. In the meso-level study of innovation, Teece developed the Dynamic Capabilities Perspective through in-depth and systematic analysis of companies such as EMI, IBM, GE and Xerox. He pointed out that companies can have lasting competition advantage only by continuously innovating their dynamic capabilities [12]. Teece defines dynamic capabilities as the ability of companies to integrate, build, and restructure internal and external capabilities to adapt to a changing external environment. He believes that the organizing and managing capabilities of organically combining the production factors and proprietary resources of an enterprise are the intangible resources accumulated by the company in its long-term production and operation. It is this ability of the enterprise that greatly reduces the transaction costs,

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and the main advantage of the enterprise’s competitive advantage. Another important contribution of Teece is his study on how to make innovations achieve better commercial value. Therefore, he focused on the capitalization of intellectual property, which paved the way for later open innovation theories. Von Hippel studied the democratization tendency of innovation. He noted that the user-centered innovation system is rapidly developing and forward-thinking about an open innovation form that adapts to a knowledge-based society and is user-centered. He tried to show us such an image: with the advent of the era of knowledge economy and the emergence of advanced technologies, user innovation has been further developed. Enterprises should not endeavor to find out what kind of products their users actually need but should give users a certain amount of the tools which allow them to design and develop their own products, from minor modifications to major innovations, all of which can be done by the users themselves. Manufacturers integrate these tools into a tool box to make product development faster and more cost-effective [13]. Von Hippel’s user innovation perspective is the founding theory for open innovation. Christensen put forward a theory of destructive innovation in his “Innovator’s Dilemma” in 1997. He mentioned that disruptive innovation refers to the presentation of very different value propositions may later develop into technologies that are fully competitive in the market. Disruptive innovation does not involve particularly complex technological changes but make the product structure simpler. The possibility of this type of innovation is minimal in the mainstream market. Only those emerging markets that are far away from the mainstream market or that do not make much sense to the mainstream market will value the attributes of these product portfolios. This precisely gives emerging companies the opportunity to subvert mature companies [14]. The goal of disruptive innovation is not to provide more powerful products to consumers in the mainstream market, but to provide simpler, more convenient and cheaper products and services by introducing products and services that are not yet good enough compared to existing products, and attract consumers in secondary markets, or to determine their own new organizational structure and business processes in a way that is different from the mainstream product and service standards, in order to establish a new value network and business model, and to discover and attract new consumers [15]. The essence of disruptive innovation is to create new demands and new markets, and the new market demand is unpredictable. After discovering the opportunities for disruptive innovation, mature companies always receive demand feedback from existing customers but completely ignoring that the demand for disruptive innovation does not exist in existing customers’ needs. Not only that, feedback from existing customers often mistakenly confirms that the market for disruptive innovation does not exist. Chesbrough’s open innovation provides a new perspective for management innovation. The open innovation model means that enterprises use both internal and external complementary innovation resources to achieve innovation in the process of technology innovation [16]. It means that valuable ideas can be obtained from the outside and inside of the company at the same time, and the commercialization path can be carried out from inside the company or outside the company [17]. Open innovation emphasizes the participation of multi-agents and the importance of external knowledge resources for the innovation process. It promotes

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cooperative innovation between companies and customers, suppliers, competitors, universities, research institutes, intermediaries, and venture capital institutions. With the help of external forces to accelerate the pace of innovation and improve innovation efficiency, it eventually formed its own competitive advantage and core competitiveness. IBM, Intel, Philips, Procter and Gamble, and Geely are all typical enterprises that implement open innovation. In the micro-level research of innovation, innovator is a challenging research topic. Unlike the inventors and entrepreneurs, the innovators are independent and outstanding kind of people. The birth and development of innovator is undoubtedly the key to great innovation. At this time, neuroscience was introduced into innovation management research and provided a powerful scientific basis for explaining the innovative behavior of microeconomic entities. With the development of brain science and technology, neuroscience has gradually been applied to every aspect of innovation management research. Neuro-innovation studies the characteristics of the subject of economic behavior—human neural activity. It helps us understand better the creative behavior of innovators from the microscopic level [18].

1.1.2 The Evolution of Innovation Paradigm Since Schumpeter proposed and created an innovation theory, and scholars from all over the world have carried out discussions around the macro, meso, and micro levels of innovation, the evolutionary process of 100 years of research and practice guided innovation taking enterprise organization as carrier to experience five stages of evolution, gradually formed innovation paradigms, elements, processes, and the transforms and evolutions of systems. (1) The first stage of the evolution of the innovation paradigm: the technology push model (mid-50s and 60s of the twentieth century). The innovation paradigm originated from the research and practice of technology. Before and after the Second World War, with the rapid development of emerging technologies such as semiconductor technology, information technology and electronic technology, and materials science, the scientific research of core technologies and their success in industrial applications such as military and civilian use have promoted the market of emerging science and technology and created a golden era of high-tech employment and industrial revolution. As a result, science and technology had established a dominant position in innovation and development, and the technology-driven innovation paradigm has also become the mainstream of society. Based on the core logic of “the positive effect of the development of technological research and application on social development and the success of corporate production and commercialization”, the innovation paradigm emphasizes the linear logic of basic scientific research on the production and sales of final technology products, and the investment of resources for research

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Basic Science

Design and Engineering

Manufacturing

Marketing

Selling

Fig. 1.1 First generation innovation paradigm: technology push model. Source Rothwell [19]. Referred from Chen and Zheng [20, 21]

and development, and to achieve a multi-development, multi-innovation, and multi-output growth paradigm, as shown in Fig. 1.1. (2) The second stage of the evolution of the innovation paradigm: the demand/ market pull model (60th and 70s of the twentieth century). The implementation carrier of innovation—enterprise organizations constantly focus on the technological benefits of existing technological changes, achieve the increase in market share and the maintenance of competitive advantages brought by the continuous enhancement of the production capacity and the significant increase in the output efficiency of products and services through continuous upgrading of technological capabilities, expansion of product production scale, and economies of scale realized by diversification of operations to achieve. With the realization of a balance between market supply and demand, and the satisfaction of technical capabilities for production and operation, business organizations have begun to shift to the market demand for innovation processes in order to achieve the satisfaction of commercial success through the market demand-oriented management paradigm. Since then, the market has become a source of ideas for guiding R&D and commercialization of innovation, as shown in Fig. 1.2. (3) The second stage of the evolution of the innovation paradigm: the demand/ market pull model (60th and 70s of the twentieth century). The implementation carrier of innovation—enterprise organizations constantly focus on the technological benefits of existing technological changes, achieve the increase in market share and the maintenance of competitive advantages brought by the continuous enhancement of the production capacity and the significant increase in the output efficiency of products and services through continuous upgrading of technological capabilities, expansion of product production scale, and economies of scale realized by diversification of operations to achieve. With the realization of a balance between market supply and demand, and the satisfaction of technical capabilities for production and operation, business organizations have begun to shift to the market demand for innovation processes in order to achieve the satisfaction of commercial success through the market demand-oriented management paradigm. Since then, the market has become a source of ideas for guiding R&D and commercialization of innovation, as shown in Fig. 1.2. (4) The third stage of the evolution of the innovation paradigm: the interactive and coupling model of technology and market (from the late 70s to the mid-80s). After the technology push model and the market/pull model, the global oil crisis broke out in the 70s, and there was a significant imbalance on product supply and demand in the turbulent market. How the enterprise effectively achieves the match between production and consumption through innovation has become the

1.1 Innovation: Origin and Paradigmatic Evolution

Demand/

Developing

Market Pull

7

Manufacturing

Selling

Fig. 1.2 The second generation innovation paradigm: market/pull model. Source Rothwell [19]. Referred from Chen and Zheng [20, 21]

focus of researchers and practitioners. Based on this, in order to avoid resource waste and maintain the effective competitiveness of enterprises in turbulent markets, the innovation paradigm emphasizes the interaction and coupling of technology and market, so as to achieve the match between the supply side and the demand side of innovation, as shown in Fig. 1.3. (5) The fourth stage of the evolution of the innovation paradigm: the integration/ parallel model (early 80s to early 90s). With the improvement of innovation complexity and the evolution of enterprises’ organizing capabilities, the innovation management issues faced by the corporate organizations have attracted the attention of researchers and practitioners after the 80s, and as an important factor in corporate organizational management, innovation plays an increasingly important role in the organization strategy and business operations. Taking the Japan as an example, the successful experiences of quality and process management, lean production, JIT (just in time) production, imitation learning and reinvention are valued by global corporate organizations. They have triggered the focus of innovation on the importance of time competition, emerged a paradigm of innovation based on integration and parallel development, as shown in Fig. 1.4. (6) The fifth stage of the evolution of the innovation paradigm: system integration and network model (from the 90s to the present). Since the 90s, the overwhelming economic globalization, information revolution, and networking have triggered the continuous transformation of individual and organizational linkage methods and business models. As the complexity of technological innovation continues to increase, the cycle of product development is gradually shortened. Practical research on new product innovation shows that every 1% increase in product development speed will increase product development costs by 1% to

New Need

Born of Idea

New Technology (Capability)

Demand of Society and Market

R&D

Prototype Production

Manufacturing

Marketing & Selling

Market

The Best Level of Technology and Production at Present

Fig. 1.3 The third generation innovation paradigm: the interactive and coupling model of technology and market. Source Rothwell [19]. Referred from Chen and Zheng [20, 21]

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1 The Concept of Innovation System

Marketing R&D Product Development Production engineering Component Manufacturing (Suppliers) Manufacturing

Marketing

Joint Meeting (Engineers/Managers)

Launch to Market

Fig. 1.4 The fourth generation innovation paradigm: the integration/parallel model. Source Rothwell [19]. Referred from Chen and Zheng [20, 21]

2%. Since then, how the company’s innovation paradigm can achieve greater, faster, better and more economical results has become a challenge for innovation to respond to rapid changes. Under this background, a single organization is facing the challenge that its own resources and capabilities are increasingly unable to match complex requirements. The innovation paradigm shifts to a systematized and networked model to realize the value of innovation through the integration of various elements such as organization technology, market, management, system and culture, as well as the collection and integration of resources between organizations, as shown in Table 1.1. Among these, the role of supporting elements such as computers, IT (information technology), and electronic communication technologies cannot be ignored. They guaranteed the timeliness of innovation, the flexibility of enterprise organization and management, the management of leading customers, strategic coordination between horizontal and vertical heterogeneous partners, the overall quality management of the company’s products and services, and the data & knowledge management of the technology and market operation. During the evolution of the innovation paradigm, the technology push model and the market/pull model emphasize the core role of the technological elements and market elements of innovation, essentially embodying the evolution of the innovation paradigm guided by the concept of elements. The flaw of this concept of elements is that the core carrier of innovation—enterprise organizations over-rely on innovation driven by single factors and cannot effectively respond to external changes. Under the technology push model, the lack of a flexible response from

1.1 Innovation: Origin and Paradigmatic Evolution

9

Table 1.1 The fifth generation of innovation paradigm: the core characteristics of system integration and network model Main aspects

Feature description

Integration of the overall innovation management of enterprise organizations

● Parallel and integration (functions) development process ● Involvement of suppliers in early product development ● Involvement of major customers in product development ● Establishing horizontal technical cooperation in appropriate places

Creating a flexible decision-making flat organizational structure

● Offering more power to lower-level managers ● Offering product advocates and project leaders with power

Building a developed internal database

● Efficient data sharing system ● Product development methods, computer-based heuristic learning, expert systems ● Use 3D CAD1) System and Simulation Technology to Support Product Development ● Connecting with CAD/CAM2) system to enhance product development flexibility and product manufacturability

Achieving effective external data connections

● Using interconnected CAD systems to develop with suppliers ● Using CAD on the customer interface ● Effective contact with research and development laboratories

(1) CAD: computer aided design (2) CAM: computer aided manufacturing Source Rothwell [19]

enterprise and organizations to market information on customer needs often leads to the failure of competitive commercialization of innovation and the path dependence of companies to specific technologies. Under the market/pull model, enterprise organizations overemphasized market demand, often neglecting the important role of technology as a core driving force for innovation. The lack of technological capabilities and the neglect of the accumulation of technological resources resulted in the lack of sustainable competitive advantage in the long-term competition, and it is also difficult to effectively respond to market turmoil caused by technological changes in the industry. Afterwards, the interaction between the coupling of technological elements and market elements and the interaction of related processes caused the innovation paradigm to shift from the concept of elements to the concept of process, thus forming the third generation of the innovation paradigm—trying to realize the match between supply and demand of innovation from the perspective of process. Matching thus effectively realizes the value of innovation. The emergence of integration/parallel model further strengthens the concept of process of the theoretical innovation paradigm with enterprise organizations as the core carrier and

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1 The Concept of Innovation System

emphasizes the linkage of elements and the coordination of functions in the innovation process. Finally, with the emergence of innovation systematized and networked models, the innovation paradigm began to shift to the fifth generation, forming the concept of system. Innovation has shifted from a traditional linear and discrete model to an integrated and networked model, guided the real-time matching of organizational resources such as technology to market demand and the linkage and symbiotic dependence between internal and external elements of the organization. The system integration and network model further highlight the important role of the company’s external innovation sources. It believes that under the conditions of rapid changes in technology, market, and organizational structure, single organizations have limited access to innovative resources, and organizations need to quickly adapt to external changes and adopt open innovation to achieve maximum in a complex and nonlinear interaction process [16], and integrates the resources of external innovation sources which includes suppliers, users, competitive and complementary companies, universities and research institutes, governments, financial and intermediary service agencies, and various heterogeneous partners. Based on this, Rothwell summarizes the five generations of evolution of the innovation paradigm, as shown in Table 1.2. Since the 90s, the concept of system has received more and more attention as the mainstream paradigm for innovation recognition and research. Table 1.2 The fifth generation of innovation evolution and main characters Evolution stage

Main character

The concept of theory

The first generation

Simple linear mode, technology push

The concept of element

The second Simple linear mode, market/pull generation

The concept of element

The third generation

Interactive and coupling model, interaction between technology and markets, feedback loops between elements

The concept of process

The fourth generation

Parallel model, the company realizes integration, linking The concept of the upstream, middle and lower reaches of the innovation process/the concept of process form a link system

The fifth generation

System integration and broad network, flexible and customer-oriented response mechanism, continuous innovation

Source Tidd et al. [22]

The concept of system

1.2 The Epistemology of Innovation System

11

1.2 The Epistemology of Innovation System With the advent of the information technology revolution, and the blurring boundaries between traditional organizations, the collaborative innovation among virtual organizations, network organizations and partner members has become a new mode of innovation development between companies and external partners. Since technology innovation is a complex process and is influenced by many factors, it is difficult for a single company to innovate independently and needs to interact with other organizations (suppliers, users, competitors and universities, research institutions, investment banks, government agencies, etc.) [23]. Tidd and von Hippel have both noticed that in order to implement innovation effectively, it is imperative to realize the information exchanging, resource interaction, and value mutual benefit between enterprises, users, suppliers, competitors, and other heterogeneous partners [24]. Chesbrough et al. called for “open innovation”, emphasizing that companies need to purposefully absorb or export knowledge in order to accelerate their own innovation and expand the use of this innovation in external markets [25]. Since then, innovation is no longer a simple linear process, nor is it a combination of simple elements. On the contrary, innovation encompasses the interaction process of multivariate heterogeneous subjects, involving complex feedback mechanisms in the process of knowledge flow and knowledge integration. Focusing on specific innovation activities, realizing the integration of various innovative elements such as technological elements, market elements, organizational and management elements, institutional elements and cultural elements, as well as the cooperation among various types of subjects such as companies, universities, research institutions, suppliers, customers, governments, intermediary agencies and service organizations. Through the complex interaction of such systems, the company’s performance and competitive advantage are enhanced. The understanding of this concept of system of innovation paradigm depends on the emergence and development of the systematic dialectical thinking and systematic evolutionary thinking. 1. The first understanding of concept of system of innovation: The rise of system science methodology and its explanation about innovation. In the 1940s, the rapid development of system science provided the methodological basis for the development of concept of system of innovation. The “old three theories” represented by system theory, cybernetics and information theory, and the “new three theories” which rose in the 1970s and represented by dissipative structure theory, catastrophe theory and synergetics, both explained their cognitions and understandings of innovation from the perspective of the system. The summary is shown in Table 1.3. System science theory is represented by systems theory, cybernetics, information theory, dissipative structure theory, catastrophe theory and synergetics. It describes the operating mechanisms and evolution rules of general systems based on elements, relationships, and environments, and is applicable to interpreting the complexity of things. The complexity and multiplexity that contemporary technology innovations

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Table 1.3 Cognition on concept of system of innovation based on the typical theory of systems science Typical theory category

Typical theory

Basic explanation

Cognition of innovation

Old three theories

System theory

The basic starting point for researching and understanding things is the entirety and the system. It consists of interacting and interdependent parts, including elements and relationships. The system is in a state of active movement and realizes the overall function which is greater than the sum of the individuals

Innovation means the reorganization of production factors

Cybernetics

Study and explore the status, functions, actions and evolution trends of system; based on different control rules of the system, the system can have different steady states

The evolution of the composition and combination of innovative elements is influenced by external conditions

Information theory

Based on probabilistic statistics, the entire process of information acquisition, processing, dissemination, and control of system information, emphasizing that information is the core foundation for maintaining system stability and achieving system functions

Information is the basic unit for the source of organization’s innovation

Dissipative structure theory

All open systems cause energy dissipation through self-organizing activities that interact non-linearly with the environment under conditions that are far from equilibrium, and thus form a stable macro-ordered state

Specific technological changes and product innovation will eventually stabilize

Catastrophe theory

The general system is often in a structural gradient, but when the control factor reaches a critical value, the system out of control to achieve mutation and qualitative change

The similarities and differences of progressive innovation and breakthrough innovation

Synergetics

Under the guidance of order parameters, the system finally realizes the transition from chaotic state to orderly state through the interaction of material flow, energy flow, and information flow with the environment

The emergence and overflow of collaborative innovation

New three theories

Source Xu et al. [26]

1.2 The Epistemology of Innovation System

13

are facing such as iterations and replacements old and new technologies, market turbulence, and diversification of customer needs and preferences, complexity of external institutional environments, and diversity of element combinations all present a high degree of complexity. System thinking in complex scientific research provides conditions for the effective interpretation of innovations, and also provides a reference for opening up the “black box” innovation’s meaning. 2. The second understanding of concept of system of innovation: elements and functions of innovation system The nature of the system consists of two parts: the first is the basic elements that make up the system; the second is the interactions between the elements. As a result, elements and relationships build the overall system [27]. As a specific type of general system, the innovation system conforms to the definition of the elements and relationships of the system [28]. As a structure that establishes a clear goal, the organization is the core subject of the evolution and development of the innovation system [29]. Given the differences in classifications, organizations can be categorized into corporate organizations, universities and research institutions, financial institutions, and government and other public institutions, but the institution is a common rule and customary rule that embedded in the interaction between organizations [30]. It is the core element to maintain the sound operation of the innovation system, and also the key to define the behavior criteria and operational responsibilities of the innovation elements. Within a particular innovation system, the element-depended interaction forms the link of the main body of innovation, which includes competitive linkage— the main competitive relationship drives the innovation of incentives and the creation of value, transaction linkage—the knowledge, resources, information required for innovation and the products and services exported by innovation are traded within the body of the innovation system, and network linkage—the cooperation and collaboration of the innovation subjects realize the evolution of the innovation process and the overflow of innovation value [31]. As the core of supporting the growth of countries, regions and specific industries, the innovation system achieves the output of specific functions through the composition and combination of elements. It includes innovation problem definition [32–34], knowledge creation [32–34] and other direct functions, as well as indirect innovation-related work incentives, resource output, exploration and development direction guidance, growth potential recognition, information and knowledge interaction sharing, market creation, risk reduction, and adaptability improvement [35– 37]. Ricconi describes in detail the functional attributes of the emerging technologybased enterprise innovation system, which including the creation of human capital, the creation and diffusion of technological opportunities, the creation and diffusion of products, the incubation of innovations, the ease of formulation of the market rules and proximity to the market, the legalization of technology and enterprises, market creation and related knowledge diffusion, increase in the degree of networking, innovation guidance and partner search, financing facilities, and labor creation; Liu Xielin and White believe that the innovation system needs to pay attention to the systemlevel functional attributes and explanatory factors, and summarizes the core functions

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1 The Concept of Innovation System

of the innovation system as R&D, application, end-user using, education, and connection [38]. Johnson and Jacobsson further emphasized that the description and analysis of the innovation system should be carried out according to the specific functions, and they summed up the core functions of the innovation system involved in creating new knowledge, guiding research directions, providing resources, creating positive economic externalities, and accelerating the realization of markets’ formations [39], etc. 3. The third understanding of concept of system of innovation: the general characteristics of innovation system The concept of innovation system is a paradigm of innovation research and a theoretical basis for the formulation of innovation policies. The innovation system research focused on the key points of innovation and learning, the overall attributes and interdisciplinary nature of the innovation system, the historical perspective and evolutionary perspective of the innovation system, and the interdependence and non-linear combination of the innovation system elements. (1) The key points of innovation and learning: the main goals and objectives of all innovation systems are aimed at innovation, emphasizing the innovative value-creation of innovation entities through the recombination of heterogeneous resources and elements to achieve a successful creative to commercialization process. The random correlation between the elements of the innovation system and the elements provides the basic conditions for the implementation of the goals of the system innovation, the evolution of the innovation process, and the value output of the innovation results. The learning of the behavioral actor is the core of the combination of the innovation process evolution and innovation elements. Lundvall regards innovation activities as the basis for the evolution of the innovation process and regards the nature of innovation as an interactive process. He believes that the core of innovation activities is learningby-doing, which means the main body of innovation behavior is based on the free combination of the environmental conditions of the innovation system to carry out innovation activities, and in the course of the evolution of this innovation activity, it constantly optimizes its own capabilities, enhances the efficiency of the innovation process and product operations [40], and optimizes the operational efficiency of complex innovation systems [41]. The interaction of behavior subject “learning-by-doing” contains with individuals, companies, suppliers, competitors, users, and other multi-heterogeneity innovation subjects. These subjects learn from each other in order to realize the innovation output and value creation of the innovation system [42]. (2) The overall attributes and interdisciplinary attributes of innovation system. Unlike the “atomism” perspective which narrowly understands innovation as creativity, invention, research and development, and technology innovation, the system concept of innovation emphasizes the overall attributes. At the main level, the innovation system emphasizes the collaboration between multiheterogenous stakeholders, and extends the innovation elements from individuals or enterprises to individuals, companies, suppliers, competitors, users,

1.2 The Epistemology of Innovation System

15

universities and research institutions, governments, and intermediary service agencies of finance and technology. At the activity level, the innovation system emphasizes the unity and coordination of innovation-related components, products and processes, technical elements, organizational management factors, institutional environment, cultural atmosphere, regional and national policies, and places specific technology innovations and model changes in general analyze and discuss in context. At the performance level, traditional innovation means the whole process of the commercialization and value exporting of ideas, and the success of technology and market is regarded as the fundamental drive and value feedback of innovation [43]. Traditional innovation focuses on the feasibility and advancement of innovation’s technology level and the improvement of economic performance and economic efficiency of innovation [44]. With the continuous deepening of technological significance and economic significance of innovation, the value of innovation in guiding public affairs such as social systems, culture, and sustainable human development has received more attention in recent years, researches and policies also payed greater emphasis on systematic thinking on innovation performance and value output. In addition to technological advancement and technical feasibility, economic efficiency, and economic performance, emphasis is also placed on the moral and ethical acceptability of specific innovations and the satisfaction of innovations’ social expectations [45] and other public value performance goals [46]. Under the overall attributes of the entity level, activity level, and performance level, innovation issues and significance are extending from the original technical, economic, and organizational levels to the social, institutional, cultural, and policy levels. The fusion of disciplines and disciplines has become the core mechanism that supports the overall attributes of this innovation, and the interdisciplinary and multidisciplinary integration has become the core mechanism that supports the overall attributes of the innovation. There are inherent connections between various phenomena in the natural world, and human society is also a part of the natural world. Therefore, the scientific knowledge system formed by human understanding of the natural world should also have integrated features [47]. The intersection of basic science and applied sciences, exploration-based innovation and development-based innovation, the convergence of natural sciences and social sciences, and the convergence and unification of multidisciplinary knowledge elements have become important trends of complex innovation systems to drive social development and civilization progress [48]. (3) Historic review and evolutionary thinking of innovation system. Like the evolution of scientific research and technology systems, the process of innovation and its commercialization are not achieved overnight, it has undergone repeated iterative and trial-and-error processes [49]. Related to this, the occurrence of specific technological changes and the alternation of old and new technology systems essentially follows the “S-curve” law of technological evolution [50, 51], and the trajectory of technological evolution has also experienced the interaction of breakthrough innovation and progressive innovation in technological

16

1 The Concept of Innovation System

level. During the incubation period of technology, the improvement of specific technology levels is limited by knowledge, resources, and applications, and after the cultivation of time, it does not show outstanding innovation value. The existing dominant innovation paradigm centers on the old technology track. With the breakthroughs in scientific research, the improvement of experimental and research conditions, and the innovation of research methods, the complementary knowledge module and technology module complemented the original technology track, achieved a leap in the innovation performance and effects of specific technology orbits, thus realizing the leap of technology track and the rapid development of innovation. When technology enters mature stage and obtains stable industrial applications, the marginal benefit of old technology innovations diminishes, the entry of new technologies will trigger a new round of technological iterations and industrial innovations, as shown in Fig. 1.5. From the perspective of evolution, the capabilities of innovation behavioral actor, the knowledge-related innovation factors, the learning mechanisms related to innovation activities, and the dynamic characteristics of the innovation process have all been analyzed and interpreted during the evolution of time [9], and also answered Schumpeter’s questions about the “creative destruction” mechanism of innovation: in the process of iteration and development specific technology, through the continuous reorganization of elements, continuous optimization of products, processes, organizations, etc., and the continuous improvement of the abilities of innovation behavioral actor, it completed self-evolution and replacement, and realized the competition and replacement of new and new models with old innovation activities. Through certain innovation and diffusion mechanisms, technological innovation has gained the cognitive embedding of the behavioral actor, and establishing legality in specific organizational, market, and regional contexts, thus it realized the rise and fall of technology itself and mode operation, and also promoted the development of the industry and the evolution of its life cycle. As a result, dynamic evolution has become an important attribute of the innovation system. (4) The interdependence and non-linear combination of elements in innovation system. The innovation under Schumpeter’s concept means the re-combination of existing elements and knowledge, and the knowledge and elements required for innovation often come from different behavioral actors [53]. For example, companies focus on innovation’s R&D and production applications, regard the commercialization of ideas and inventions and the success of marketization as the core objective of their own competitive advantages. Universities and research institutions attach importance to the development of innovation knowledge sources, carry out research activities such as basic research and applied basic research required for innovation through the reserve advantages of talents and resources, realizing knowledge spillovers and knowledge radiating from scientific development, interdisciplinary knowledge integration, etc., and guide the knowledge reserves and R&D support for corporate innovation activities. The complex relationship between “research” and “innovation” shows that the links between universities, research institutions and innovative companies

1.2 The Epistemology of Innovation System

17

Technique Level

Technology track III: A new round of technological revolution and the emergence of industrial innovation

Technology track I: The dominance of old technology and the emergence of new technologies

Breakthrough Innovation

Technology Track II: Rapid Development of Technology

Progressive Innovation

Time

Fig. 1.5 The rule of technology’s evolution and iteration. Source Christensen [52]

directly determine the development of national and regional innovation systems [54]. As the terminal for the realization of innovation value, customers often focus on the output of demand, and through feedback evaluation of products, processes, services, etc., put forward suggestions for improvement of innovation activities, so as to guide the matching of innovation products and services to market demand, and achieve innovation value output. The government and other institutions focus on innovation environmental protection and policy incentives, improvement of the public environment, business environment, and knowledge sharing environment, as well as efforts in the protection of innovative intellectual property rights and innovation and cultural creation. It creates the environment for resource flow, information sharing, and value interaction within the innovation system for innovative core stakeholders of companies, universities, research institutions, and customers, thereby promoting a non-linear combination of innovation among heterogeneous entities. In the interaction process of heterogeneous entities, the behavioral actors within the innovation system evolve through self-organizing mechanisms and collaboration, it realizes the interaction and cooperation innovation of resources at the individual level, realizes the emergence of innovation at the system level so that the heterogeneous entities can share the additional spillover effects of innovation under non-linear conditions. As a result, the emergence of innovation and the value creation of the innovation system are not only influenced by the innovation elements and behavioral actors, but also by the dependence relationship between elements [55].

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1 The Concept of Innovation System

1.3 The Evolution of the Innovation System Since Schumpeter first defined the concept of innovation, innovation was once considered as a one-way, gradual linear process that began with basic research, through applied research, design trial production, manufacturing, and sales. However, in fact, the innovation process is not a simple linear process but a complex interaction that incorporates with heterogeneous elements. This has led to the development of innovative system theory. The concept of system theory first came from the field of biology. It was proposed by the biologist Bertalanffy in the 1952 “Antibody System Theory” and was later introduced into the field of innovation. Freeman, Lundvall, and Nelson proposed the concept of a national innovation system [56–58]. Since then, scholars have successively proposed regional innovation systems [59, 60], industrial innovation systems [61], and enterprise innovation systems [62, 63], as shown in Fig. 1.6. Before the 1980s, the relationship between companies and enterprises was usually competitive, but since the late 1980s and 1990s, with the rise of the knowledge economy, the advent of the era of big data, the increasing personalized product requirements, and the business environment of companies becomes more complex and changeable, enterprises have to re-examine their own values, social responsibilities and sustainable development issues. The traditional enterprise innovation system is further challenged [64].

1.3.1 National Innovation System Technological change and economic development cannot leave the national situation embedded in the innovative participants who are typical agents of the enterprise. The

Fig. 1.6 The evolution of innovation systems. Source Chen and Huang [64]

1.3 The Evolution of the Innovation System

19

concept of national innovation system arises from the basic assumption of the difference of the situation in the innovation country, and it also becomes the important driving force to influence the national innovation ability and the national comprehensive competitive advantage [65]. Since the Second World War, technological change has become the international trend of promoting economic development, the world’s innovation and development show the trend of pluralism, which is mainly manifested in a wider range of technology options, enterprise restructuring, technical cooperation, the prevalence of synergy between technology cooperation and production and the globalization of research activities [53]. In the long-term evolution of international competition, the national situation of technological innovation in the world has become an important focus of innovation and competitive advantage promotion. The significance of the national situation to the development of science and technology has been supported by scholars both in theory and in evidence [66]. The Wallender of the World Bank, through a study of 67 projects in 5 countries: Peru, Brazil, South Korea, Tanzania and Kenya, shows that the success of technology transfer depends on the technical support structure of technology-importing countries and their government policies [67]. The “model of national absorption and institutionalization of foreign science and technology” proposed by Roessner, etc. point out that the national absorption and institutionalization of foreign science and technology ability depends mainly on: ➀the social and economic supporting structure, including the effective function of capital market, the formation of funds, the speed of capital investment and saving, the level of foreign direct investment and the level of investment of the nation to education; ➁ technical support structure, including corporate or government expenditure on research and development, effective protection of intellectual property rights, cooperation with technical multinational companies, technical services provided by public or private organizations, technical capital stock (factories and equipment for scientific research), technical knowledge stock (ownership of foreign and national patents, technical information, etc.), technical human resources (scientists and engineers, skilled workers, experienced managers or entrepreneurs, technical trainers, etc.), technical services (parts supply, consulting services). Korean scholar Choi puts forward the industrialized TERG model of developing countries, emphasizing the following factors for the national capacity and development of the core values: first, the technology (T-technology) (including the introduction of foreign technology, independent research and development efforts and technical cooperation); second, the education (E-education) (including science and technology education, educational institutions, incentives and vocational education); third, the resources (R-resource) (including market, energy, labor, raw materials, marketing, infrastructure); fourth, the government (G-government) (including capital allocation, development strategy, planning and coordination, enterprise environment, legislation, etc.). The synergy of these elements will facilitate technology development based on industrialization in developing countries [68]. Choi further stresses that the fundamental problem of the introduction of technology in developing countries was how to establish a system of research and development including all infrastructure, and actively support its development [69]. China’s scholars also initially involve in this issue, such as Zeng Daoxian’s research shows that the information environment,

20

1 The Concept of Innovation System

consulting environment, technology environment, financial environment and talent environment is the main factor in the success of technology introduction; Kang Rongping and Bai Yiyan all emphasize the restriction of the system on the digestion and absorption of imported technology. Kang Rongping further points out: the essence of the problem is that China’s scientific and technological production system does not meet the needs of modern scientific and technological development. In this context, the national innovation system has become the focus of research and policy, and its support for national innovation and technological revolution is mainly manifested in: the environmental conditions that create the synergy between enterprise innovation interaction and technology across industries, providing technological and market-oriented infrastructure conditions for innovation, creating the soft environment and software conditions needed for national innovation-including information and equipment needed for innovation; civic health, education system, cultural environment and legal norms, etc., and more inclusive and pluralistic subject participation which are related to innovation [53]. The scholars, represented by Freeman, Lundvall and Nelson, conducted an indepth study on the national innovation system. Freeman discusses the core experience of Japan’s rapid development of economic take-off and competitive advantage after the Second World War systematically, and holds that the core power of Japan’s success lies in the construction of the national innovation system, the efficient and cooperative knowledge production system in the national innovation system, knowledge circulation system and knowledge application system play an important role in driving social progress and development of national innovation system. Lundvall focuses on the interaction of heterogeneous subjects in the national innovation system, and through the interactive study of the complementary organizations such as enterprise organization, market users and suppliers, it is considered that system main body synergy and interaction should be the key to the operation of national innovation system. Nelson stressed that the national innovation system itself is a system arrangement, which connects the interaction between technology and economy, focusing on the interaction of knowledge production, knowledge dissemination, knowledge diffusion, knowledge application and system environment and other related subjects’ interaction. The system design and function implementation of a country’s science and technology innovation policy will directly determine the running efficiency of the national innovation system, also affect the transfer of science and technology and knowledge innovation in the whole society, and then influence the direction and the efficiency of the development of national innovation. Table 1.4 summarizes the core research and viewpoints of three founders of the national innovation system research. Based on the discussions of three pioneer researchers, the Organization for Economic Cooperation and Development (OECD) defined innovation as the result of complex interaction between heterogeneous subjects such as enterprises, public and private research institutions, universities, users and intermediary service agencies; and from the perspective of application development, the national innovation system is described as the mechanism of interaction between research, studying and production, in order to realize the fundamental goal of scientific progress and economic

1.3 The Evolution of the Innovation System

21

Table 1.4 Core viewpoints and research summary of national innovation system The founder scholar

Core research and summary of viewpoints

Lundvall

● Based on the concept of the national production system of Fredrieh Liszt, and Eric von Hippel’s research on informal information exchange between enterprises, he first put forward the concept of “national innovation system” in the world, and called for the emphasis and research on the supporting environment of technological innovation [70, 71] · Studying the national innovation system from the perspective of production system, pay attention to the system factors of the micro-level of the national innovation system, and the linkage mechanism of the producer and the consumers, and interact with each other in order to promote the national economic development and innovation ability [72]

Freeman

● Focusing on the relationship between technological innovation and national economic development, the key elements of national innovation system are technical factors and institutional elements. In the national innovation system, universities should devote themselves to the production and creation of knowledge, especially the knowledge of public technology; the government provides the guarantee for the innovative fund support and the system policy; enterprises focus on profit-oriented production activities and participate in market selection and market competition. In the framework of public-private coordination between enterprises, universities and government, the interaction between government policy, enterprise research and development, college education and training, and industrial innovation fundamentally transforms the mode of national economic growth and research and development, and thus promotes the national innovation ability [20, 21] ● Further extended the Lundvall’s assumption that national innovation systems are “supported by the public and private networks that create, absorb, improve and diffuse the activities and interactions of new technologies”, not only in support of research and development activities, but also in resource organization or management activities needed for innovation.; through the study of Japan’s national innovation system, Japan’s national innovation system is characterized by the horizontal communication between various departments of the enterprise such as “billboard” management and focusing on engineering, etc. [73]; the vertical exchange between the Ford doctrine, the Taylor doctrine, the manufacturing and research and development departments is the American national innovation system characteristics [66]

Nelson

● Research and focus on the evolution of technological change and economic development in the national innovation system, and related knowledge innovation activities; it is considered that the innovation ability of high technology industry and higher education is the core of national innovation system, and the coordination of government, production and science determines the innovation performance and finally becomes the foundation of national competitive advantage ● To understand the national innovation system from the angle of government policy, it is concluded that the formal regulation and informal coordination of government, the investment in research and development will affect the connection and balance of the innovation in the country-wide [73]

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development [74]. On the basis of this concept, Chinese scholars have carried out further research and discussion on the construction elements of the national innovation system and the interactive relationship. Xu Qingrui thinks that the national innovation system should include education system, research and development system, enterprise technology innovation system, capital system and government rules which are closely related to innovation, as shown in Fig. 1.7, the coordination of each subsystem realizes the efficient operation and value output of the national innovation system; while Wang Chunfa proposes that the national innovation system contains all the political and economic activities and social systems for learning search and research and development, mainly involving innovative individuals, business organizations, financial institutions, universities and research institutions, public policy and service institutions, and institutional entities such as legal norms and cultural atmosphere, It promotes the flow of scientific knowledge and technological innovation in the system of national economy and industry, and finally promotes the national level of technical ability, learning ability, innovation choice ability, organization and coordination ability, etc. [73]. The author thinks that [73] the national innovation system sees the system as the synthesis of each innovation source and user at the national level. A national innovation system consists of four integrated sectors, namely, the industrial sector, the public research sector, academic institutions (the education sector) and the government. The first three departments are engaged in research and development activities, and the government uses its policy tools to play a coordinating role. Among them, the most important sector is the industrial sector, because the national competitiveness is mainly industrial competitiveness. At the same time, the role of government needs to be emphasized. National innovation system should be regarded as the complex of each subsystem, and each subsystem can be further divided according to different industries, regions and key technologies. Moreover, the national innovation system can be composed of many industrial innovation systems. Since the innovative behavior and activities of each industry are closely related to users, the concept of the national innovation system can be applied to the industry, enhancing the competitiveness of the industry by promoting collaboration and information flow among the main sources of innovation. Lu Yongxiang from two aspects of technological innovation and knowledge innovation, comprehensively defines the components, core subjects and main functions of the national innovation system, as shown in Table 1.5. From the above conclusions, we can see that the research on the national innovation system has been recognized as follows: first, the composition of the national innovation system, which contains a number of subsystem elements; the second is the characteristics of the national innovation subsystem; the third is the correlation between the national innovation subsystem and the fourth is the characteristic of the dynamic adjustment of the national innovation subsystem in the different science and technology development road. Among them, education, finance and finance, accumulation of capital, research and development system and effective government regulation are the important factors of national innovation system. Firstly, the aim of education is to improve and popularize people’s knowledge, and knowledge is

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Education system Financial system

Enterprise technology innovation system Research and development system Government rules

Fig. 1.7 Composition of the national innovation system. Source Xu [74] Table 1.5 System structure and functional relationship of national innovation system Element composition

Core body

Other bodies

Main function

Knowledge innovation system

National research institutes, teaching and research universities

Other institutions of higher learning, enterprise research institutions, government departments, infrastructure

The production, dissemination and transfer of knowledge

Technology innovation system

Innovative enterprises

Scientific research institutions, educational and training institutions, government departments, intermediary agencies and infrastructure

Learning, innovation, creation and dissemination of technology

Knowledge dissemination system

Higher education system, vocational training system

Government departments, other educational institutions, scientific research institutions, enterprises, etc.

Spreading knowledge and cultivating talents

Knowledge application system

Society, enterprise

Government departments, scientific research institutions, etc.

Practical application of knowledge and technology

Source Lu [75]

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the prerequisite of technological innovation; education is one of the most important subsystems in the national innovation system, and in the education system, the educational input and the higher education structure which adapts to the leading mode of the science and technology development play an important role. A reasonable proportion of the scientific and technical personnel in a country should depend on the development of science and technology and the requirement of national economy and the level of science and technology and economy. Some developed countries not only have a large number of technical personnel, but also train a large number of researchers to carry out basic science and cutting-edge technology research, which help them acquire the world’s leading position in science and technology. Some countries (such as Japan) mainly focus on technical personnel, pay attention to the introduction, digestion, absorption and innovation of advanced technology. Some countries disregard the national conditions, one-sided attention to research talent and basic research work, do not pay attention to technical personnel and development research work, resulting in a team structure imbalance, a large number of brain drain, the external use of results. The role of science and technology in the development of domestic economy is weak. In order to make the high, medium and low three categories of scientific and technical personnel have a reasonable proportion, we must rationalize the educational structure. Among them, higher professional education is the core part of science and technology education (including cultivating college students and postgraduates), is the main position of cultivating research-oriented, developing-type and technical-type talents, so its level reflects the level of science and technology development of a country. Whether the structure of higher education is reasonable has great influence on the development of a country’s science and technology and the sustainable development of economy. Second, money is a major obstacle to innovation. The problem is even more pronounced for developing countries. Countries have different means of financing, and governments have various research-and-development taxes that benefit various risky investment banks to support technological development. Once again, for the research and development system, there is no doubt that there can be no significant innovation in the development of basic research, applied research and experimentation without promoting a series of scientific and technological possibilities. Most basic studies, in particular, do not have direct economic benefits, but they are the basis for most innovations. Under the condition of market economy, enterprises generally do not carry out basic research without direct economic benefit, which requires the government that transcends the local interests of the enterprise to assume responsibility for organizing and funding basic research. Finally, in today’s society, the development of science and technology is an activity carried out in the institutional, organizational and cultural contexts. The market has the function of self-organization and self-improvement in stimulating the development of science and technology, but there are some defects, so it is difficult to make the science and technology development and innovation activities in the optimal level for satisfying the social needs [76].

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1.3.2 Regional Innovation System Global innovation and economic development presents typical characteristics: Innovation activities are not randomly distributed in all parts of the world, on the contrary, with the support of knowledge and economy as the core elements, the innovation activity presents the regional attribute, which is mainly characterized by the geographical agglomeration and cluster characteristics of innovation [29]. Under the background of today’s information revolution, the dominant coding knowledge that innovation relies on becomes more and more easy to obtain, and the efficiency of knowledge search, absorption, combination and application is gradually improved. The tacit knowledge needed for innovation becomes the key to the innovation system running and positive performance overflow. The regional agglomeration benefit makes the innovative hardware resources easy to be shared and applied, and promotes the rapid flow of innovative software resources, such as the flow of innovative talents, the diffusion of innovative methods and innovative techniques, and the spread of innovative knowledge and experience, which can be realized through regional geographic agglomeration and cluster development. Thus, to a great extent, the collective learning of tacit knowledge and the emergence and overflow of innovation value are promoted. Based on this, the regional innovation system is gradually concerned by researchers and practitioners. Some scholars regard the regional innovation system as the summation of the complex innovation activities related to the behavior subject and system in the region. It is directly related to the creation, dissemination and diffusion of technological innovation connected with behavioral actors.1 In the behavioral actors of many regional innovation systems, the narrow regional innovation system focuses on the core members such as enterprises, universities and research institutions, which directly determine the mechanism of technology transfer and spread of knowledge diffusion which are related to innovation activities [77]; the generalized regional innovation system, which is in addition to the core main elements of the three spirals, will influence the broader stakeholders of the economic structure and institutional structure into the framework of regional innovation system, thus embodying a kind of operation law of the integration of learning, research and exploration, and the unification of bottom-up and top-down bidirectional interaction mechanism [78]. Figure 1.8 systematically shows the elements and structure system of regional innovation system. As the core of the concept of regional innovation system, the innovation activity of regional innovation system is rooted in the localization innovation attribute, paying more attention to the influence of tacit knowledge and technology sticky effect. On the one hand, it emphasizes the innovation competition and evolution of tacit knowledge spread by regional knowledge and talent agglomeration, on the other hand, it emphasizes the influence of regional innovation system on technological evolution and innovation development under the meaning of heterogeneous organization. For example, the innovative infrastructure needed for regional innovation systems, the 1

Major scholars include Scott AJ, Saxenian A, Storper M, Florida R, Amin A, Thrift N, Asheim BT, Cooke P, Braczyk HJ, Cooke PN and Morgan K, etc.; views cited from Chen and Zheng [79].

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1 The Concept of Innovation System Regional innovation systems

External impact factors

Regional socio-economic and cultural conditions National innovation system organizations The subsystem of knowledge application and utilization

Customer

Vertical networks

Contract makers

v

National innovation system policy tools

Industries

Collaborative body

Horizontal networks

Competitors Other regional innovation systems

v

Knowledge, resources, human capital flow interaction Knowledge generation and diffusion subsystem

International innovation organizations

v

Technical intermediary organizations

Public research institutions

Labor intermediary organizations

Educational institutions

Policy of transnational innovation systems

v

Fig. 1.8 The constituent elements and structure system of regional innovation system. Source Cooke [27]. Referred from Chen and Zheng [20, 21]

network of innovative actors built by regional and localized innovations, and the regional innovation system, norm, behavior convention, culture and other attributes [80], which are necessary for the development of regional innovation environment, interact with each other, and realize the factor synergy, function evolution and selfgroup governance of regional innovation system. Relying on the connection of heterogeneous subject, the establishment of trust mechanism of subject cooperation and cooperative innovation, the innovation agglomeration and geographical proximity form the convenience of tacit knowledge spread, and the interaction between innovation system and cultural environment. Regional innovation system plays an important role in promoting regional competitive advantage and economic development, and its main performance is as follows: first of all, the improvement of regional productivity, namely the agglomeration of innovation resources and the transfer of innovation factors, reduces the cost of innovation transaction, and realizes the innovative value output of collaborative evolution among innovative subjects; secondly,

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the innovation emerges and the value overflow mainly based on the interaction of the heterogeneous innovation subject, that is, the creative source, the knowledge source and the innovation resources with various backgrounds, which leads the innovation and the value overflow; finally, the formation of innovative business model and governance model, that is, the creative subject in accordance with the creative objectives of the free combination of resources, and in the development of regional innovation system, the innovation business model and the innovation governance mode are reformed, and the market value of regional innovation system activity is promoted. Based on the in-depth discussion of the regional innovation system, the research begins to analyze and classify the regional innovation system of the typical mode, thus providing reference for the strategy of technology transfer and the policy of system management. Asheim emphasizes the diversity of regional innovation and divides three kinds of regional innovation systems according to the difference of institutional structure, including the territorial embedded, regional innovation system, regional network innovation system and regional national innovation system [80]; according to the difference of technology transfer mode in the regional innovation system, Cooke divides the regional innovation system into three categories: grass-roots innovation model, innovative network model and unified model [81]; further, starting from the regional innovation competitiveness, relying on the infrastructure, institutions, business organizations, organizational policies and other aspects of the comparison related to regional innovation system competitiveness, Cooke divides the regional innovation system into a highly competitive regional innovation system and a low competitiveness regional innovation system [82]. Table 1.6 is the classification of regional innovation system and its characteristics summary. Typical Regional Innovation Ecosystem Column Zhongguancun: The world’s first innovative cluster in the future [84] 1. Zhongguancun innovation cluster development process and scale Zhongguancun, which originated in the 1980s, is one of the first national independent innovation demonstration zones in Zhongguancun, an electronic street. After more than 30 years of development (Table 1.7), Zhongguancun has developed into a “one zone 16 parks” Innovation cluster, cluster industry mainly contains electronic information, biomedicine, new energy, materials, advanced manufacturing, energy saving and environmental protection. With the strong support of the national policy, Zhongguancun has achieved remarkable results. 2011, Zhongguancun enterprises achieve total income of 1.96 trillion yuan, an increase of 23.2%; the total profit of 153.39 billion yuan, an increase of 18.1%; pay tax 92.58 billion yuan, an increase of 20.7%; total exports of 23.73 billion U.S. dollars, an increase of 4.17%, the economic indicators are ranked as the first of the major High-tech zones in China. Zhongguancun has become a veritable first domestic innovation cluster. 2. Innovation ability Zhongguancun is in the national leading position in the Innovation personnel investment and the innovation capital investment and maintains the steady growth trend.

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Table 1.6 Classification and characteristics summary of regional innovation system Classification perspective

Basic categories

Main features

According to the system structure division [83]

Territorial embedded regional innovation system

The innovation activities of enterprises depend on the localization of organizational learning, and the regional innovation system is convenient for enterprises to create culture, society and geography

Regional network innovation system

Enterprise organizations embed specific regional innovation systems, with localized interactive learning as the core. However, the regional innovation system in this area implements more infrastructure, institutional norms and other interventions to enable enterprises to play a greater role, such as industrial clusters, often with the support of institutional infrastructure as a regional innovation system to assist

The national innovation system of regionalization

The operation link of industrial system and the system infrastructure are embedded in the national and international innovation system, and the influence of external organization is more significant; the organization synergy of regional innovation system tends to linear mode, which relies on concrete cooperative projects, and the behavioral actor constructs a practice community tending to innovation system

Dividing according to technology transfer mode [81]

Grassroots innovation The transfer of knowledge and technology is model carried out with the needs of regional local organizations, and innovative subjects guide enterprises and other organizations to carry out niche innovation and realize the transfer of technological innovation among regional system members Innovative network model

Innovative behavior main body based on financial support and policy incentive to carry out collaborative cooperation as the core of innovative activities, to achieve the innovation activities in the explicit and tacit knowledge transfer, thereby creating value

Unified mode

Fully guided by the policy, is the government policy-led innovation and technology transfer model, reflecting the government’s innovative radiation benefits and platform role (continued)

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Table 1.6 (continued) Classification perspective

Basic categories

Main features

Diving based on competitiveness [82]

Highly competitive regional innovation system

The infrastructure shows the autonomy of tax and expenditure, the accumulation of private wealth, the incentive of policy and the synergy of production and learning; the institutional environment is characterized by cooperative culture, interactive learning and consensus-oriented; The enterprise organization performance is harmonious, the training system is perfect, the interactive innovation atmosphere is qualified, etc.; the organizational operation policy is characterized by inclusive development, supervision and guidance balance, consultative style and networked management

Low competitive regional innovation system

The infrastructure is characterized by the dispersion of expenditure, the national financial limitation, the weak policy incentives and the fragmented innovation projects; the institutional environment is characterized by competitive atmosphere, individualistic orientation and frequent institutional disputes; enterprise organization performance is hostile to employee relationship, ego request of skills, close internalization and only research and development orientation, etc.; the organization operation policy manifests in the exclusiveness, the dogmatism mechanism, the branch layer structure and so on

Table 1.7 Historical evolution of Zhongguancun Time

The important decision of the CPC Central Committee and the State Council on the innovation and development of Zhongguancun

Early 1988

Central agreed to “Zhongguancun electronic street investigation report”

May 1988

Provisional regulations of pilot area approved by state council

June 1999

Zhongguancun science park approved by state council

March 2009

Zhongguancun demonstration area approved by state council

Milestone events

Become the first national high-tech Industrial development zone

Become the first national independent Innovation demonstration Area

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First, there has been a steady increase in the number of science and technology activists. 2011, Zhongguancun science and technology activists in the number of personnel reached 359,000, the same period increased by 16.2%, each of the thousands of people with scientific and technological activities reach 259.6 people. Second, the high-end intellectual resources accelerate the gathering. In 2010, 579,000 people in Zhongguancun had a bachelor degree or above, firstly accounting for the half of the total number of employees. As of the end of 2010, Zhongguancun has 56 people selected in the national “thousand people plan”, 87 people were selected in Beijing “HAIJU project.” Third, the expenditure on scientific and technological activities is growing rapidly. 2011, Zhongguancun science and technology activities funded expenditure amounted to 78.1 billion yuan, an increase of 26.6% from the previous year. Among them, the research and test development expenditure are 31.35 billion yuan, a year-on-year growth of 20.4%, 4.7 % higher than 88 national high-tech zones average strength. Zhongguancun has grown steadily in the fields of patent application, patent authorization, standards and trademarks. First, in 2011, Zhongguancun enterprises, institutions of higher learning and scientific research institutions three of innovative subjects apply for a total of 32,562 patents, accounting for the Beijing patent application volume of 41.8%. Enterprise patent application volume reached 21,866, an increase of 47.7%, of which the invention patent application reached 12,802. Second, in 2011, three innovative subjects, Zhongguancun enterprises, universities and scientific research institutions obtained 18,343 patent authorizations, which accounted for 44.9% of Beijing’s patent authorization amount. The enterprise obtains the patent authorization 12,587 pieces, a year-on-year growth of 42.5%, in which the invention patent authorization is 4,992 pieces, a year-on-year growth of 7%. Third, Zhongguancun in the standards, trademarks have also achieved remarkable results. By the end of 2011, Zhongguancun enterprises led the creation of 90 international standards, 2,457 national standards; the total number of corporate trademark applications is 56,162, and the total number of valid registered trademarks is 38,083. 3. Internationalization Internationalization is an important aspect that reflects the rapid development of Zhongguancun. The internationalization of high-tech enterprises in Zhongguancun mainly involves four aspects: products, industry, capital and talents. First, the internationalization of products mainly refers to product exports and technical output. 2011, the total export of Zhongguancun enterprises amounted to 23.7 billion U.S. dollars; technology or services exports 2.71 billion U.S. dollars, a year-on-year growth of 43.8%, accounting for total exports from 8.3% in 2010 to 11.4%, this proportion is 8.9% higher than the original 83 national high-tech zones. Zhongguancun still uses the electronic information industry as its main export industry, with an export volume of US$13.27 billion. The foreign exchange earnings from advanced manufacturing, new materials, new energy, biomedicine, and environmental protection industries were US$3.86 billion, US$2.11 billion, US$1.4 billion, US$4.8 billion, and US$1.0 billion, respectively. Second, the internationalization of industries is mainly manifested in undertaking international outsourcing activities and actively

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conducting international research and development cooperation. The internationalization of industries in the new energy sector has achieved outstanding performance. For example, Sinovel Wind Power has developed strategic cooperation with Irish international new energy developers. The outsourcing business mainly focuses on undertaking R&D industry and takes foreign projects in the form of general contracting, mainly focusing on software R&D, biopharmaceutical R&D and other fields. Third, the internationalization of capital is mainly manifested in the intracluster companies going overseas for listing, launching a series of investment and M&A activities overseas, and attracting multinational companies to invest in the region. As of the end of 2011, a total of 79 companies in Zhongguancun were listed overseas, with a total financing of RMB 69.35 billion. In 2011, 188 foreign direct investment projects were launched, and the amount of overseas direct investment reached 16.16 billion yuan, a 2.8-fold increase over the previous year, far higher than the 26.2% growth rate of the original 83 state-level high-tech zones in the same period; Attracting multinational corporations’ direct investment of 1.85 billion U.S. dollars, which is a 2.4-fold increase over the same period last year. Fourth, the internationalization of talent is mainly represented by the introduction of overseas high-tech talent. In 2011, Zhongguancun had 8,991 employees from Hong Kong, Macao, Taiwan and foreign countries, an increase of 29.8% year-on-year. At present, the number of employees from Hong Kong, Macao, Taiwan, and foreign countries accounts for 21.4% of the total number of Hong Kong, Macao, Taiwan, and foreign employees in 88 national-level hi-tech zones nationwide, which to a certain extent shows that the degree of internationalization of Zhongguancun is higher than that of other high-tech zones in the Mainland. 4. Industrial cluster development Zhongguancun is a strategic emerging industrial cluster with a global technology dominance. After more than 20 years of development, high-tech industrial clusters represented by electronic information, bio-pharmaceuticals, energy environmental protection, new materials, advanced manufacturing, and aerospace, with R&D and service as their main forms, have been formed, as shown in Table 1.8. As of 2013, the number of major special projects undertaken by Zhongguancun has reached more than 1,300, accounting for about 40% of major national projects. Venture capital accounts for one-third of the country’s total, and one-tenth of the national energy consumption for ten-thousand industrial added value. At the same time, as many as 4,000 new technology-based enterprises are established each year, and modern services account for two-thirds of the total revenue, which has become the leading industry in Zhongguancun. The total income of Zhongguancun enterprises has increased significantly. The average annual growth rate in Zhongguancun reached 36.6% in 25 years, accounting for 1/7 of the total revenue of the national high-tech zone, and the development momentum of innovation clusters has been vigorous, as shown in Fig. 1.9.

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Table 1.8 Categories and Development Results of Zhongguancun Industrial Clusters Industry cluster category

Cluster platform and results

A new generation of information technology industry cluster

EB-class big data processing platform; 32-processor tightly coupled technology key application host; big data integrated machine and modular cloud computing data center; the world’s largest IPv6 backbone network; international mainstream stateless translation IPv4/IPv6 transition technology; TD-SCDMA, TD-LTE, McWill, IGRS International Standard; TD-LTE baseband chip, core network equipment and test instrumentation; wireless broadband communication and indoor precise positioning solutions; large size ultra-high definition liquid crystal, active matrix organic light emitting, LED (light emitting diode) self-luminous display technology

Biological industry cluster

Cancer, deafness, genetic disease detection biochip; SARS, A/ H1N1 influenza, hand-foot-mouth vaccine; molecular marker and gene screening technology; angiogenesis antitumor technology; digital pathology technology; PET-CT, PET-MRI multimodal molecular imaging system

Energy-saving and environmental protection industrial cluster

Membrane Sewage Treatment Technology; Flue Gas Comprehensive Treatment Technology; Regenerative High Temperature Air Combustion Technology; Waste Heat Power Generation Technology; Organic Waste Resource Treatment Technology; Silica Sand Resource Utilization Technology; Soil Remediation Technology

New material industry cluster

Nano-green printing plate printing technology; super-sequencing CNT arrays and thin-film preparation technology; 10,000-ton amorphous strip material production line; large-size silicon single crystal preparation technology; nano-supercapacitor technology

New energy and new energy Modular pebble-bed high-temperature gas-cooled reactor automobile industry cluster technology; biological natural gas modular preparation technology; UHV active transmission valve technology; megawatt vanadium flow battery; permanent magnet motor drive motor; lithium iron phosphate material and its power battery manufacturing Technology; 100 kW double winding high torque motor and controller Aerospace industry cluster

High-resolution earth observation technology; Beidou navigation satellite network technology; multi-mode high-precision satellite navigation; Long March No. 5 large-scale carrier rocket; manned space flight and lunar exploration project

High-end equipment manufacturing Industrial clusters

Large-scale titanium alloy laser rapid prototyping technology; 8.5 generation TFT-LCD core technology and process; rail transit traffic control system (communication-based train control system (CBTC); 40 nm integrated circuit manufacturing process

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venue / 100 million yuan

30000 25000 20000 15000 10000 5000

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0

Year Fig. 1.9 Changes in total income of enterprises in Zhongguancun from 1988 to 2012. Source Zhongguancun Management Committee meeting presentation documents

5. Radiation ability Zhongguancun, as the leading technological innovation nationwide and a demonstration zone for high-tech industrial innovation clusters, is also actively promoting diversified cross-regional arrangements and cross-regional cooperation methods to promote intra-cluster technology while realizing its potential to become bigger and stronger. The output of products, services and brands, radiation drives the nation’s innovation and development. In 2011, the total revenue of the consolidated statements of listed companies within the cluster totaled RMB 1.1 trillion, of which revenue of about RMB 773.8 billion was realized outside the demonstration area, and external radiation income accounted for more than 70% of the total revenue of the consolidated statement. Companies within the cluster have demonstrated a diversified cross-regional radiating drive model, such as technology transactions, product and service demonstration applications, cross-regional innovation and collaboration, cross-regional R&D centers and branches, and cross-regional mergers and acquisitions. First, in terms of technical transaction output, the turnover of the Zhongguancun export technology contract in 2011 was 132.06 billion yuan. It accounted for 70% of Beijing’s technical contract turnover, accounting for more than 25% of the country’s total, of which 77% radiated to outside Beijing and abroad. Secondly, in terms of product and service demonstration applications, a number of companies, including Digital China, Clearwater, and Kabowen, have signed strategic cooperation framework agreements with other cities to demonstrate the application of the company’s products and technologies and promote the transformation and upgrading of local industries and economic development. Third, in terms of cross-regional innovation and collaboration, there are currently nearly 90 industrial alliances initiated or led by

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Zhongguancun enterprises. More than one-third of them have absorbed the members of Beijing’s foreign regions and formed an open, cross-regional cooperation model for innovation in production, education and research. Fourth, in establishing crossregional R&D centers and branches, Zhongguancun has established 5,653 branch offices outside Beijing. A large number of enterprises such as Datang Telecom, China Putian, and Antai Technology set up branches in other countries. Fifth, in terms of cross-regional mergers and acquisitions, in 2011, there were 40 cases of Zhongguancun enterprises acquiring domestic and foreign companies. Some largescale enterprises through mergers and reorganization, actively integrate high-quality resources in the industrial chain, and promote the overall competitiveness of the industrial chain. By 2012, the influence of radiation in Zhongguancun is further strengthened. Zhongguancun Technology Contract turnover reached 245.9 billion-yuan, accounting for 40% of the country’s total turnover, of which 80% was exported to areas outside Beijing. At the same time, more than 8,300 branch offices have been set up outside Beijing, and 224 listed companies have been established. The company’s revenue has reached 1.33 trillion yuan, among which 3/4 companies have established strategic cooperation relationships with more than 40 regions across the country. 6. Development Goals The Outline of the Development Plan for the National Model Area for Independent Innovation in Zhongguancun (2011–2020) approved by the State Council in 2011 clearly stipulates the strategic positioning and development goals of Zhongguancun’s future innovation and development. The strategic orientation is: “deepen the areas of reform ahead, open innovation and guidance areas, high-end element aggregation areas, innovation and entrepreneurship gathering areas, and strategic industrial sources”; The overall goal is to initially establish a science and technology innovation center with global influence by 2015 and build a global technological innovation center and high-tech industrial base with global influence by 2020. The main objectives for 2015 are as follows: first, the initial formation of an institutional mechanism and policy system conducive to innovation and entrepreneurship, that is, important breakthroughs have been made in institutional and institutional reforms such as personnel incentives, science and technology finance, intellectual property rights, technology transfer and industrialization, and research institutes. Second, the ability to independently innovate has been significantly improved. That is, a number of major scientific and technological achievements have been created. The main position of technological innovation has been comprehensively strengthened, and knowledge-creating centers and technological innovation centers with global influence have basically been established. The third is to build a special talent zone for high-end innovative and entrepreneurial talents, that is, form a perfect talent mechanism and environment, and gather about 50,000 high-end talents. Fourth, innovation and entrepreneurship are highly active. That is, original industries and new business models are constantly being created. The new-type entrepreneurial service industry has grown stronger. Science and technology finance and venture capital have become

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one of the most active elements in the world. Fifth, the industrial competitiveness ranks in the forefront of the world, that is, the total income of the demonstration area reaches RMB 3.5 trillion, the proportion of modern service industry in the GDP of the demonstration area has increased to over 65%, and the contribution of scientific and technological progress to economic growth has further increased. Sixthly, it is necessary to nurture and form a number of strategic emerging industrial clusters, that is, a number of key core technologies and standards for industrial applications and industrialization, and to cultivate a group of large-scale enterprises with an annual sales income of over 50 billion yuan, and a large number of small and mediumsized enterprises with strong innovation capabilities have emerged. Seventh, the level of internationalization of innovation has greatly increased, that is, it has extensively absorbed international innovation resources. Internationalized operations have become an important way for business growth, and international science and technology cooperation and exchange have been more dynamic and have more international influence. By 2020, the main objectives of the innovation and development of Zhongguancun are as follows: the innovation environment is more perfect, the innovation vigor is significantly enhanced, the innovation efficiency and the benefit is obviously improved, the total income reaches 10 trillion yuan, in the fields of software and information Service, biomedicine, new energy etc., it forms 2–3 industry cluster cultivate groups of international well-known brands and strong international competitiveness of transnational enterprises, the formation of a number of worldclass universities and scientific research institutions, cultivate and gather a group of outstanding innovative talents, especially industry leaders, become a technological innovation center and high-tech industrial base with global influence.

1.3.3 Industrial Innovation System With the evolution of global science and technology and economic development, the division of labor in the global economic industry chain has been continuously refined, and industrial innovation is facing the deep development of resource interaction and integration, horizontal and vertical integration, spatial geographic agglomeration and information interaction, and the complexity of industrial innovation and its laws have triggered research, practical concerns and discussions: from the early focus on the process of industrial innovation and the dynamic laws of innovation types, to the relationship between the level of science and technology and R&D investment, to Schumpeter’s thoughts on the classification of innovation and industrial structure (Schumpeter’s innovative type I and type II), and Pavitt’s industry classification based on innovative resource perspective and Porter’s five-force model under the logic of industry competition [85]. The fundamental logic of the industrial innovation system lies in reexamining the competition and cooperation relationship of heterogeneous organizations in the

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traditional industrial chain, emphasizing the creation of value through the innovation activities such as technology licensing, patent protection, research and development cooperation, and standard setting to realize the reintegration of the industrial chain, thereby creating value [86]. Early research focused on the dynamic nature of the industrial innovation process. Prof. Utterback from the Massachusetts Institute of Technology and Prof. Abernathy from Harvard University proposed a dynamic model of industrial innovation (UA model) based on an analysis of the US automotive industry, and the periodical fluctuation of product innovation and process innovation is called the basic law of dynamic evolution of industry innovation [87], as shown in Fig. 1.10. In the early stage of industrial development, a large number of product innovations have emerged, and the market has poured into a large number of innovation entrants who are trying to gain competitive advantage through product innovation competition; with the establishment of industry-led design, the product structure and corresponding market share of industrial development have basically stabilized, the number of product innovations has begun to decline, and the focus of industrial innovation has shifted to the improvement of process flow in order to achieve faster, better production of leading products, as well as innovative economic scale and learning benefits [88]. Later, in addition to the dynamic nature of industrial innovation, research began to focus on the classification attributes of industrial innovation. Essentially, industrial innovation is an innovation system composed of specific industry actors, technologies, markets, cultures, and institutional policies. It realizes the flow and value creation of talents, knowledge, information, and funds [21]. The discussion of its classification is the subdivision and feature induction of industrial innovation system attributes. Schumpeter is based on an innovative industry perspective and classifies industrial innovation systems into “Schumpeter Innovation Type I” industrial innovation systems and “Schumpeter Innovation Type II” industrial innovation systems The main innovation frequency

Product Innovation Process innovation

I Change phase

II Transitional phase

III Specific stage

Process: inconsistent

Systematization

Product: product performance optimization

Minimize product costs

Fig. 1.10 Dynamic process of industrial innovation. Source Atbaek [89]

Time

1.3 The Evolution of the Innovation System

37

based on the industrial perspective of innovation, according to the correlation of different knowledge base, behavioral actor and innovation factor [90]. The former usually has high technological opportunities, and the technical barriers and knowledge barriers are low. Innovation relies more on entrepreneurial spirit and business models and means to achieve market subversion and creative destruction, thereby gaining value. The latter relies on high R&D investment and R&D density. Technical thresholds and knowledge are highly specific. Innovation relies heavily on knowledge and technology resources. As a result, the “Schumpeter Innovation Type I” industrial innovation system is more embedded in the context of SME clustering and dominance. Typical industries include textiles, leather, wood processing, chemical instruments, glass, general industrial equipment, metallurgy and metal working equipment, assembly and material handling equipment, transportation tools (except aircraft) and so on [91]. The “Schumpeter Innovation Type II” industrial innovation system is more dependent on large enterprises with the advantages of resources and capabilities, and guided by large companies in the development of industrial innovation, involving biochemistry, telecommunications, semiconductors, computers, electric power, vehicle engines, nuclear industry and other industries [22]. Pavitt believes that the resource conditions associated with different industrial innovations are different. For “core industries” (such as electronics, machinery, instrumentation and chemical industries), the resources for innovation and technological conditions are plentiful; the corresponding “secondary industries” (such as automobiles, metallurgy) really have less innovation, and they more achieve the goal of innovation by acquiring technology and knowledge resources from the core industry; and those industries that rely entirely on the technical support of other industries are called “consumer industries” (such as service industries) [92]. Based on resource conditions and proprietary mechanisms, Pavitt divided the industrial innovation system into four categories, as shown in Table 1.9. Based on the classification of industrial innovation systems, the study further explored the in-depth factors and components of industrial innovation systems, and tried to establish a general industrial innovation system framework based on the classification and differences of industrial innovation systems to explain the elements and influencing factors of industrial innovation systems. Based on the elements of the industrial innovation system, the mainstream research paradigm establishes an analytical framework based on the innovation activities of the industrial innovation system and emphasizes that the core elements of the industrial innovation system include knowledge and technology, participant networks, and institutional environments. Shown in Fig. 1.11. Knowledge and technology are the resource base of the industrial innovation system and have a key impact on innovation-related R&D activities, production activities, and commercialization activities. Universities and research institutions in industrial innovation systems are producers and creators of basic scientific knowledge. The enterprise organization becomes the core carrier of R&D knowledge and technology application knowledge, and through the effective transformation of basic knowledge into applied knowledge, the enterprise’s special protection of knowledge is realized, making it difficult for the knowledge element to be imitated by

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1 The Concept of Innovation System

Table 1.9 Four major categories of industrial innovation systems Basic categories

Basic description

Supplier-oriented

Innovation depends on cooperation with Textile industry, suppliers. New technological innovations are service industry mainly embedded in new innovative components and elements. Specificity is mainly reflected in technology diffusion and learning. It is often achieved through “doing while learning” or “using while learning”

Typical industries

Scale effect type

Rely on the innovation of other industries. Highly embedded and dependent on process innovation, innovation resources may come from the inside (such as R&D and middle school) and may also come from outside (such as cooperation with parts and production factor providers). Specificity is generally obtained through confidentiality and patents

Automobile industry, steel industry, consumer industry

Specialized supplier type

Innovation focuses on performance, stability and user performance improvements, and users participate in the innovation process. Innovation resources come from both internal (hidden knowledge and experience of skilled workers) and external (user-manufacturer interactions). Specificity comes mainly from the nature of localization and knowledge interaction

Equipment manufacturing, software industry, computer industry

Based on science

High-frequency product and process innovation. The company implements internal R&D and cooperates with universities and public research institutions to complete scientific research and realize the complementarity and innovation of knowledge resources. In this type of industry, science is the main source of knowledge and innovation, and specialization is achieved through a series of mechanisms such as patents, time leadership, learning curve and confidentiality

Pharmaceutical industry, electronics industry, aerospace industry, chemical industry

Resource Fagerberg [90]; Dodgson et al. [92]

competitors [93]. At the same time, companies through the innovation activities of “doing while learning”, form an experience learning and absorptive capacity based on specific knowledge and technical elements to promote the improvement of the enterprise’s innovation ability and the competitive advantage of the industrial innovation system [94]. Participant network is the integration of industry innovation behavior subject, which usually includes individual innovators, enterprises, suppliers, competitive organizations, universities and research institutions, financial institutions, intermediary service organizations, etc., by maintaining the heterogeneity of the members of the innovation body to achieve the complexity of the innovation system and the

References

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Environment system Industrial innovation system

Industrial innovation system

Innovation activities

Participant network

Knowledge and technology

Fig. 1.11 Elements and composition of industrial innovation system

overflow of innovation value [95]. In a specific industry innovation system, innovation is regarded as the process of interacting and driving the innovation evolution of heterogeneous subject members through communication, exchange, competition, control and cooperation, and finally realize the positive drive of the participant network connection to the innovation commercialization value success. The institutional environment is the common cognitive framework of the members of the industry innovation system, and the normative criterion embedded in the innovation activities of the behavioral actor, including the norms, the public habits, the practice criterion, the law, the standard etc. [92]. Usually, the operation of the industrial innovation system depends on the system situation embedded by the behavior subject, and it is carried out under the pressure of the top-down regulation, and the behavior subject can also guide the improvement and optimization of the system environment of the industrial innovation system through the feedback from the bottom-up system.

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7. Freeman C (1982) The economics of industrial innovation. University of Illinois at UrbanaChampaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship 8. Freeman C (1982) Technology policy and economic performance: lessons from Japan. Pinter Publishers, London 9. Nelson RR, Winter SG (1982) An evolutionary theory of economic change. Belknap Press of Harvard University Press, Cambridge 10. Utterback JM (1996) Mastering the dynamics of innovation. Harvard Business School Press, Boston 11. Utterback JM, Abernathy WJ (1975) A dynamic model of process and product innovation. Omega 3(6):639–656 12. Teece DJ, Pisano G, Shuen A (1997) Dynamic capabilities and strategic management. Strateg Manage J 18(7):509–533 13. von Hippel E (2009) Democratizing innovation: the evolving phenomenon of user innovation. Int J Innov Sci 1(1):29–40 14. Christensen TJ, Snyder J (1997) Progressive research on degenerate alliances. Am Polit Sci Rev 91(4):919–922 15. Yang JJ, Lan HL (2009) Destructive innovation strategy in dynamic competition: an analysis framework of transaction costs. Sci Technol Progr Policy 26(12):1–4 16. Chesbrough HW (2003) Open innovation: the new imperative for creating and profiting from technology. Harvard Business School Press, Boston 17. Chen YF, Chen J (2009) Research on the mechanism of open innovation promoting innovation performance. Sci Res Manage 30(4):1–9 18. Chen J, Tang XW (2013) Brain and innovation: a review of neural innovation research. Science Press, Beijing 19. Rothwell R (1994) Towards the fifth-generation innovation process. Int Mark Rev 11(1):7–31 20. Freeman C (2016) The national innovation systems in historical perspective. Camb J Econ 19(1):5–24 21. Chen J, Zheng G (2016) Innovation management: win sustainable competitive advantage, 3rd edn. Peking University Press, Beijing 22. Tidd J, Bessant J, Pavitt K (2008) Innovation management: integration of technological and market change, and organizational change, 3rd edn; Wang YH, Li WL (eds) Translation. Tsinghua University Press, Beijing 23. He YB (2007) The concept of system and overall view of enterprise technology innovation. Technol Econ 26(4):30–32 24. He YB (2008) The concept of system of enterprise technology innovation and its enlightenment. J Syst Sci 16(2):75–80 25. Chesbrough H, Vanhaverbeke W, West J (2014) New frontiers in open innovation. Oxford University Press, Oxford 26. Xu GZ, Gu J, Che HG (2000) System science. Shanghai Science and Technology Education Press, Shanghai 27. Miao DS, Xu GZ (2001) System science is the science of overall emergence. In: Xu GZ (ed) Systems science and engineering research. Shanghai Science and Technology Education Press, Shanghai 28. Johnson A (2001) Functions in innovation system approaches. In: Nelson and Winter Conference, Aalborg, Denmark 29. Faberger J, Morley DC, Nelson RR (2009) Oxford innovation handbook. In: Liu DL, Zheng G, Yu L, et al (eds) Intellectual Property Publishing House, Shanghai 30. Edquist C, Johnson B (1997) Institution and organizations in system of innovation. In: Edquist C (ed) Systems of innovation: technologies, institutions and organization. Pinter Publishers, London, UK, pp 41–63 31. Remoe S, Guinet J (2002) Dynamising national innovation systems. Austr J Labour Econ 7(1):89–108

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57. Freeman C (1995) The national system of innovation in historical perspective. Camb J Econ 19(1):5–24 58. Nelson RR (1993) National systems of innovations: a comparative analysis. Oxford University Press, Oxford 59. Cooke P (1992) Regional innovation systems: competitive regulation in the new Europe. GeoForum 23:365–382 60. Cooke P, Heidenreich M, Braczyk HJ (2004) Regional innovation systems. Routledge, London 61. Malerba F (2002) Sectorial systems of innovation and production. Res Policy 31(2):247–264 62. Chen J (1996) Firm innovation system. In: Proceedings of international conference of management science, Hong Kong University of Science Technology 63. Chen J (1999) System view and system framework of technological innovation. J Manage Sci 2(3):66–73 64. Chen J, Huang SF (2014) Research on evolution of enterprise technology innovation system. J Ind Eng Eng Manage 4:219–227 65. Lundvall BA (1992) National systems of innovation: towards a theory of innovation and interactive learning. Pinter Publishers, London 66. Chen J (1994) National innovation system: a new exploration of the road to sci-tech development. J Dialect Nat 16(6):22–29 67. Roessner JD, Porter AL, Xu H (1992) National capacities to absorb and institutionalize external science and technology. Technol Anal Strat Manage 4(2):99–114 68. Choi HS (1983) Bases for science and technology promotion in developing countries. Asian Productivity Organization, Tokyo 69. Choi HS (1986) Science and technology policies for industrialization of developing countries. Technol Forecast Soc Chang 29(3):225–239 70. Lundvall BA (2009) Innovation as an interactive process: user-producer interaction to the national system of innovation: research paper. Afr J Sci Technol Innov Dev (1):10–34 71. Chen J (1994) National innovation system: a new exploration of the road to the implementation of science and technology development. J Dialect Nat 16(6):22–29 72. Lundvall BA (2010) National systems of innovation: toward a theory of innovation and interactive learning. Anthem Press, London 73. Wang CF (2003) Historical evolution and development trend of national innovation system in major developed countries. Economic Science Press, Beijing 74. Xu QR (2000) Research, development and technology innovation management. Higher Education Press, Beijing 75. Lu YX (1998) Innovation and future: national innovation system facing the era of knowledge economy. Science Press, Beijing 76. Chen J (1994) National innovation system: a new approach to the implementation of science and technology development. Dialect Nat Newslett 16(6):22–29 77. Chung SY (2002) Building a national innovation system through regional innovation systems. Technovation 22(8):485–491 78. Lundvall BA (1992) National systems of innovation: an analytical framework. Pinter Publishers, London 79. Chen J, Zheng G et al (2016) Innovation management: winning a sustainable competitive advantage, 3rd edn. Peking University Press, Beijing 80. Fagerberg J, Mowery DC, Nelson RR (2009) The oxford handbook of innovation. In: Liu XL, Zheng G, Lin L (Eg-Chi Translators) Intellectual Property Publishing House, Beijing, China 81. Cooke P (1992) Regional innovation systems: competitive regulation in the new Europe. Geoforum 23(3):365–382 82. Cooke P (2001) Regional innovation systems, clusters, and the knowledge economy. Ind Corp Chang 10(4):945–974 83. Asheim BT, Cooke P (1998) Localized innovation networks in a global economy: a comparative analysis of endogenous and exogenous regional development approaches. Comparat Soc Res 17:199–240

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Chapter 2

Enterprise Innovation System

The enterprise innovation system means the interactive process of the formation, adoption, implementation of creative ideas within the company, and the combination of creativity and organizational practice. Andrew H. van de Ven Professor Emeritus in Carlson School of Management, University of Minnesota, USA

2.1 The Origin of Enterprise Innovation System With the growing competition in the market and the shortening of the development cycle of enterprise products and services, the fundamental requirement for enterprise innovation to become a competitive advantage lies in the fact that the enterprise should cater to the market demand with innovation in its products and service in a rapid and high-quality manner within the cost range. The limitation of departmental functions requires companies to achieve cross-functional coordination and resource integration, and the limitation of resources and capabilities of single organization also requires companies to establish extensive contacts with external organizations such as suppliers, users, competitors, universities and research institutions, governments, and intermediaries. Through knowledge transfer, information interaction and resource complementarity, enterprise innovation systems are built. Under the conditions of an open environment, enterprises realized the interaction between internal functional departments and external heterogeneous organizations in resources, information and energy, and built the coordination and unification of actors, processes, and activities. Through the establishment of an open enterprise innovation system and the coupling of various elements within the enterprise system, the enterprise innovation system will manage to promote the competitive advantage. From the perspective of the research process of innovation theory, the previous studies mostly focus on the innovation behavior of entrepreneurs—this is the first generation of technological innovation theory, such as Schumpeter’s work from 1934 to 1944 which emphasized the role of entrepreneurs. As the study progressed, © Science Press 2023 J. Chen, Enterprise Innovation Ecosystem, https://doi.org/10.1007/978-981-99-3374-7_2

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many scholars began to notice that innovation must be carried out in the interaction between enterprises or between enterprises and users, including the interaction between suppliers and assemblers, producers and consumers, and the technological information exchange between competitors. Among them, the point of von Hipple is more representative [1]. In his point of view, there are various “sticky messages” in the process of technological innovation. It is also a process full of trial, and it cannot completely determine the direction in which innovation problems are solved. In order to speed up the process of innovation, it is necessary to strengthen the exchanges and cooperation between innovators and users so as to extract the necessary “sticky information” in a timely manner. Therefore, the current research on technological innovation also deepens the internal and external synergy of the innovation process, which is the innovation system. By observing the innovation process of developed countries such as the US and Japan, it can be found that the technological innovation system of enterprises has a great influence on the development of innovation activities. Take Japan for example, in the past, people often noticed the success of Japan’s “absorptive” innovation strategy and did not see the huge role of Japanese companies in the building of innovation systems. The characteristics of Japanese enterprises’ technological innovation systems are shown in Table 2.1. Table 2.1 The characteristics of japanese enterprises’ technological innovation systems Index

Technological development Technology introduction

Digestion and absorption

Engineering, development, research focus

Engineering

Engineering, manufacturing process R&D

Innovation strategy

Continuous improvement

Absorptive innovation

Innovation

Combination within company

General

High integrity

Higher level of integrity

Innovation task source

Manufacturing department

R&D department, manufacturing Department or company

Company

Integration of R&D and technology introduction

Dispersion

High integration

High integration

Innovation risk tolerance

Individual

Group

Group

Source Chen [2], Saleh and Wang [3]

Progressive self-innovation

2.2 The Connotation, Structure and Characteristics of Enterprise Innovation …

47

2.2 The Connotation, Structure and Characteristics of Enterprise Innovation System 2.2.1 The Connotation of Enterprise Innovation System The author introduces the concept of enterprise innovation system for the first time and describes the enterprise innovation system as an innovation system consists of four subsystems, i.e. entrepreneurship, R&D, technical training and the government to realize the enterprise innovation practices in strategic design, research and development activities, personnel training and environmental adaptation [4]. Since then, the academic community regards the enterprise innovation system as a structural model driven by innovation power [5]. Its research focuses on the interaction of corporate dynamic elements and guides the output of innovation value. Based on the enterprise innovation system proposed by the author, He Yubing further defined the enterprise innovation system. He believes that with the complex innovation process of enterprises, it is difficult for enterprises to carry out independent innovation, and it needs interaction and cooperation among various heterogeneous organizations (including suppliers, users, competitors and universities, research institutions, investment banks, government agencies, etc.). Therefore, the enterprise innovation system contains a multi-actor interaction process. Based on this, the enterprise innovation system can be regarded as a complex network with feedback paths that encompasses the company’s internal and external technological factors and non-technical factors in order to enhance the company’s innovation performance and sustainable competitive advantage [6]. This definition is an in-depth explanation of the enterprise innovation system. First, in the context of the concept of system, enterprise innovation system as a specific system, it takes enterprise development and evolution as the basic goals. Second, the analysis carrier of the enterprise innovation system is the enterprise, and the system boundary is the enterprise boundary. The enterprise innovation system consists of heterogeneous entities such as suppliers, users, competitors and universities, research institutions, investment banks and government agencies, these entities can participate in innovation activities and collaborate with enterprises in innovation, and ultimately increase the competitiveness of the focus enterprises. Third, the enterprise innovation system involves the coordination of various activities such as product development, process improvement, organization and management operations, marketing, and personnel training that related to enterprise innovation activities. Fourth, the enterprise innovation system cannot ignore the guarantee effect of culture and institution construction since culture and system are also important mechanisms to maintain the healthy operation of enterprise innovation system [7]. Fifth, the enterprise innovation system is in line with the universally applicable concept of system cognitive thinking paradigm, and its system is composed of specific subsystems to realize the evolution of function operation and innovation.

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2.2.2 The Structure and Characteristics of Enterprise Innovation System He Yubing described the basic structure of the three-level subsystem of the enterprise innovation system, as shown in Fig. 2.1. First, the core level of an enterprise innovation system consists of three entities that interact and coordinate with each other: The R&D department, the production department and the sales department. They are responsible for the specific implementation of the enterprise’s innovation activities. Second, in addition to the operational collaboration of the three elements, enterprises establish subsystems of talent training, management tools, entrepreneurship, capital supply, logistics platforms, systems and culture, to support specific R&D, production and sales related to innovation system. Finally, based on the limited resources and capabilities, enterprises can break through organizational boundaries and collaborate with governments, suppliers, competitors, universities and research institutions, users, financial institutions, and intermediary service organizations to achieve the search, integration, and absorption of external innovation resources, and further support the development of internal innovation activities. Given the principle that system structure determines system functions, the basic structure of the enterprise innovation system is based on the improvement of its core competence and independent innovation capabilities. On the basis of thorough understanding and analysis of the external environment, the innovation elements are coupled in a nonlinear manner to create the chaotic edge of the system so as to realize the appreciation of innovation and the overflow of value [6]. As the result of the interaction and evolution of the innovators and the innovation factors, the enterprise innovation system has distinct system attributes and

Information Government

Personnel Training Funding Supply R&D Department

Supplier

Management Tool User

Logistics Platform

Entrepreneurship Production Department

Competitor

University and Research Institution

Sales Department

System and Culture Strategy

Fig. 2.1 The basic structure of enterprise innovation system. Source He [6]

Financial Institution and Agency

2.3 The Evolution of Enterprise Innovation System [10]

49

system characteristics. First, integrity: the core of system thinking is to grasp the integrity of it [8]. The enterprise innovation system is the collaboration between the core elements and supporting elements of the company’s internal innovation, and also the collaboration between the internal innovation bodies and various external heterogeneous stakeholders. Based on the overall system attributes, the enterprise innovation system not only emphasizes the optimization and interaction between the elements and the actor itself, but also its innovation spillovers and value creation at the enterprise level, thereby enhancing the company’s innovation and competitive advantages. Second, openness: the enterprise innovation system is essentially a dissipative structure system [6] far from the equilibrium state. It drives the system from non-equilibrium state to equilibrium state through the interaction with the external environment of matter, information and energy. At the same time, changes in external factors, such as entrepreneurship, market innovation opportunities and technological revolutions, have caused the transition of an enterprise’s innovation system from a certain equilibrium state to a new non-equilibrium state. This has led to the development of new innovation trajectories and system evolution trajectories, and the promotion of sustainable competitive advantage. Third, dynamic evolution: enterprise innovation activities and innovation systems are not static in nature but embedded in the evolutionary learning process of innovation complexity [9]. The goal of innovation activities is achieved through interactive learning and interactive performance between the innovator and innovation factors, and it also drives the transfer of innovation from low level to high level. Fourth, emergence: the enterprise innovation system is a complex system based on the organic coupling and interaction of various elements. The system achieves a dynamic balance in single elements, various elements, and the whole system, and finally initiates “1 + 1 > 2” collaborative innovation at the overall level of the enterprise’s innovation system to achieve system-level value overflow and emergence [8]. Fifth, uncertainty: innovation is inherently uncertain, while the evolution of complex systems has general properties such as nonlinearity and abiogeny. Therefore, the enterprise innovation system reflects the uncertainty under the self-organization nonlinear interaction of system elements and the design and guidance of the enterprise management control system. In other words, the goal of designing and organizing an enterprise’s innovation system is to realize nonlinear combination and interactive feedback of factors through management and mechanism design, sum up the general rules of the evolution of the innovation system, and ultimately increase the possibility of successful enterprise innovation and value creation, and reduce operations risk, to achieve the company’s sustainable competitive advantage.

2.3 The Evolution of Enterprise Innovation System [10] The development of enterprise innovation system is an evolutionary process. It has experienced four stages of development: the innovation system centered on internal R&D, the innovation system based on collaboration and integration, the strategic

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management-oriented innovation system and the innovation ecosystem, as shown in Fig. 2.2. In the first-generation enterprise innovation system that centered on internal R&D, internal R&D is considered to be the enterprise’s most valuable strategic asset and reliable guarantee, and it is characterized by a closed and independent innovation model. The second-generation innovation system is based on collaboration and integration, and relatively complete and open. “Interaction” is the key word at this stage, which includes the interaction between departments inside the internal R&D system of the enterprise, between R&D and other departments, between producers and customers or suppliers and between producers and other companies. It is an internally integrated and external open innovation system. The third-generation enterprise innovation system is highly based on the strategic management-oriented innovation system, which the management structure of the company and the executives play a central role in innovation. The fourth-generation innovation ecosystem is “ecological” and “evolutionary”, and its purpose is to provide enterprises with a growing and evolving environment, promote the symbiotic evolution of related companies and to generate unexpected innovations. In the process of constructing the ecosystem, the building of core capabilities within the enterprise should be further strengthened, the accumulation and acquisition of basic R&D and key core technologies should be focused, so that the integration of innovation resources would have a clear direction, and the strategic nature of technological innovation of enterprises (especially central enterprises) would be embodied (Table 2.2).

Fund Creative Invention Government

Academic Institute Service Institute

Ecosystem

Service Institute Leading Product Research Institute

Global Market Supply Chain Strategic Management

Media

Education Culture, Law, Social Responsibility

International Competitor

Other Enterprise

Industry Institute

Commercial Facilities

The Third Generation

The Fourth Generation

University External Collaboration and Open Innovation The Second Generation

The First-Generation Internal R&D

Internal Integration (Manufacturing, marketing)

Fig. 2.2 Evolution of enterprise technology innovation system. Source Chen and Huang [10]

2.3 The Evolution of Enterprise Innovation System [10]

51

Table 2.2 Characteristics of different generations of innovation system Time period

Name

Characteristic

The first generation (1950s to mid-1960s)

The innovation system centered on internal R&D

Internal, independent

The second generation (1960s to mid-1980s)

The innovation system based on collaboration and integration

Interactive, open

The third generation (1980s to 1990s)

The high strategic management-orientated innovation system

Strategic management

The fourth generation (after 1990s)

The innovation ecosystem

Ecological, core

2.3.1 The First Generation: The Innovation System Centered on Internal R&D In the 50s and 60s of the twentieth century, thanks to the development of new technologies such as materials technology, biotechnology and electronic information technology, the importance of science and technology to innovation are recognized. The internal R&D system represents the enterprise innovation system, such as Xerox’s Palo Alto Research Center, AT&T’s Bell Labs, and IBM’s T. J. Watson Laboratory. The enterprise conducts internal R&D, and achieves technological breakthroughs, design and development, trial production and manufacturing new products. Through internal channels, new products are brought to market, and services and technical support are provided. The market monopoly status depends on technology, and strict control of patent rights is implemented for all key elements. The superior position of internal R&D creates technical barriers for other competitors to enter and is considered to be a valuable strategic asset and reliable guarantee of the company. It can ensure technology confidentiality and technology independence, and then maintain its leading position in technology. It is the key to improving the core competitiveness of enterprises and maintaining competitive advantage, and even a huge obstacle for competitors to enter many markets. Its characteristic is the strict control of innovation and vertical integration, and it is a closed independent innovation model. The enterprise innovation system in such a context is called the innovation system centered on internal R&D. The basic idea is that more R&D equals to more innovation. In this period, the status of the market in enterprise innovation has not been taken seriously. At the same time, the enterprises have not yet fully realized the importance of breaking the company boundaries and initiating external cooperation to corporate innovation. The innovation system which focuses on internal R&D has laid a solid foundation for the improvement of enterprise innovation. For example, Sany and CSR have paid great attention to the construction of an internal R&D system. Sany has established a global R&D system structure based on research institutes and research departments in accordance with the idea of “specialized layout and multi-distribution”. Each division has established more than 30 professional research institutes and is mainly

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engaged in research and development of various products. The research institute also has 221 branches according to different professional divisions. It established the general research institute at the headquarters to conduct a unified management of R&D projects, patents, technical standards, PDM (product data management), test and inspection, and industrial design. It formed a dual-track matrix R&D management model that integrates the vertical management of the business division and the horizontal management of the research institute, realizing the effective allocation of innovative resources and ensuring the high efficiency of R&D and innovation. Based on the research institutes and departments, Sany has set up a clustered technology platform, including 1 national and 3 provincial-level enterprise technology centers, 3 engineering technology research centers, 2 postdoctoral scientific research stations, and 2 academicians expert workstations, etc. With these establishments, Sany is able to support the collaborative design of 32 research institutes worldwide, establish the industry’s first “science and technology information port” and R&D project management platform, standardize information management platform, patent application management platform and other R&D management systems, to achieve innovation knowledge sharing and research and development of digital management. CSR fully exploited the advantages of mechanism, talent, technology and capital to build a research and development joint group to continuously support technological innovation. The R&D system of CSR is centered on Academia Sinica, which has overseas R&D institutions, national R&D institutions, national enterprise technology centers, provincial R&D institutions, provincial enterprise technology centers, and postdoctoral workstations. So far, CSR has formed five core technologies (vibration damping technology, noise reduction technology, light weighting technology, insulation technology, water treatment technology) and seven core competencies (synthesis of polymer materials, composite modification of polymer materials, system structure simulation analysis, vibration analysis, noise control, process equipment design, testing analysis and evaluation capabilities) that focus on the engineering application of polymer materials. From 2007 to 2012, the investment in technology as a percentage of sales revenue of CSR is shown in Fig. 2.3. In 2012, the investment in science and technology of CSR reached RMB 4.7 billion, and it received government funds and tax incentives of more than RMB 800 million, and the contribution rate of new products reached 70%. The internal research and development system created by CSR Group in China has provided favorable conditions and laid a solid foundation for the introduction, digestion, and absorption of new technology. Up to now, the CSR Group has made remarkable achievements in innovation, ranking first in the domestic industry with patent ownership, and ranking top among the central corporate machinery manufacturing enterprises. CSR currently has 4,840 effective patents, and has won one special state science and technology progress award, two first prizes and six second prizes.

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Fig. 2.3 The proportion of technology revenue, sales revenue and technology investment of CSR from 2007 to 2012

2.3.2 The Second Generation: Innovation System Based on Collaboration/Integration In the late 1960s, the competition between enterprises continued to intensify and productivity increased significantly. Enterprises began to realize that the market played an important role in the innovation process, and market demand was considered as the source of ideology for guiding research and development. Enterprises began to pay attention to how to use existing technological changes, diversify to achieve economies of scale and gain more market share. In the 1970s, following two oil crises, the supply of products was oversupplied, and the market’s influence on companies was escalated. Mowery and Rosenberg [11] found that the enterprise innovation process began to integrate production and market resources on the basis of R&D, obtain potential creative sources from a variety of sources, the enterprise innovation system began to change from a single R&D system to the direction of science, technology, market and manufacturing linkage, in order to respond quickly and accurately to the market. The uncertainty of enterprise innovation is not only reflected in the uncertainty of technology, but also the uncertainty of market, strategy and finance. Teece explains why leading technology companies may not necessarily achieve the advantages of pioneers, but followers can win through quick imitation [12]. He also points out that in addition to R&D, innovation should also be made in complementary assets including manufacturing capabilities and marketing capabilities. Innovation management must coordinate and organize R&D, marketing and production well. The three major management modules are linked to each other in order to work together to realize the value of creative ideas through practice. In addition, due to the increasingly open business environment and fierce market competition, a closed internal innovation model has become inefficient and can hardly meet the requirements of corporate innovation, and even to some extent has hindered enterprise innovation. Chesbrough proposed open innovation theory [13] in 2003 and

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applied it to practice to help companies build an open innovation system. The second generation enterprise innovation system is based on collaboration and integration. Compared with the first-generation system, the second-generation enterprise innovation system not only integrates the internal resources of production, manufacturing and marketing, but also integrates external innovation resources through the penetration of organizational boundaries. On the one hand, the enterprise’s innovation idea originates from the R&D department, manufacturing department, and market department within the organization, and carries out innovation activities through synergies with innovation ideas such as internal strategies, talent, and data. On the other hand, it also originates from the outside of enterprise and uses innovation ideas and markets that lead customers, service organizations, research institutions, universities and other organizations in the industry. The second generation of innovation systems integrates internal and external ideas into the corporate structure. Innovation ideas within the company can also enter the market through external channels, and extend the enterprise’s existing business to generate additional value. The innovation system of Haier is a typical example of second generation innovation system. With five global R&D centers as resource interfaces, Haier has established strategic cooperation with world-class suppliers, research institutes and famous universities. Altogether, Haier has set up a “P + D” innovation portal online and has established global R&D resources cooperation with 36 top suppliers, 4 innovation media, 6 expert networks, 29 associations, 32 academic institutions, and 360 technology companies. While realizing its own transformation and upgrading, the internal and external integrated open innovation system of Haier also leads the traditional home appliance industry to the path of digitalization, informationization and networking, and has become a key motivation of the transformation and upgrading of the traditional home appliance industry, as shown in Fig. 2.4.

2.3.3 The Third Generation: The High Strategic Management-Orientated Innovation System From the perspective of enterprise management, innovation is a process from the birth of new ideas to research, development, trial production, manufacturing, and first commercialization [14]. From an innovative technology to an innovative product that is highly recognized in the market, it must swim across the sea of “Darwin” and go through many processes. Therefore, innovation is a strategic activity that relates to the direction of business development [15]. It has a close interaction with corporate strategy, R&D, manufacturing and marketing, as shown in Fig. 2.5. The importance of strategic management in enterprise innovation has become increasingly prominent, which has made the third generation of innovation systems highly based on strategic management.

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Integrating global innovation resources

Overseas R&D Institutions

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Various Research Institutes Technology Company Mass Creativity: Everyone is Innovation SBU Domestic and Foreign Design Center Integrating Global Innovation Resources

Fig. 2.4 Haier’s open innovation system integrating internal and external resources

Strategic Management

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Fig. 2.5 The positioning of organizational functions of innovation management

The relationship between the enterprise’s innovation strategy and its overall strategy can be described as: innovation strategy is a key component of enterprise strategy. Innovation strategy should be consistent with the enterprise’s overall strategy. The innovation strategy serves the purpose of overall strategy while promoting it at the same time. The decision-making body of an enterprise’s innovation strategy hinges on the enterprise’s leadership and management system. Corporate Governance was originally proposed by Adam Smith, after which economists

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and management scientists began to study it [16–18]. Research shows that innovation, as a company’s major strategic action, is closely related to specific corporate governance structure. Scholars mainly conduct research on agent conflict, ownership structure, and governance model of the board of directors. Wright et al. believe that the existence of agency conflicts affects and undermines managers’ pursuit of corporate innovation [19]. Feng Genfu and Wen Jun demonstrated the correlation between corporate governance and technology innovation from the perspective of ownership structure [20]. Jensen proved that internal corporate governance mechanisms affect the efficiency of corporate R&D resource allocation and thus affect corporate technology innovation [21]. Nakahara believes that top management’s support is the most important factor that affects the technology innovation of an enterprise [22]. Zahra found that the relationship between separate positions of the chairman and CEO (Chief Executive Officer) and enterprise innovation depends on the size of enterprise [23, 24]. Hua Jinyang pointed out that corporate governance plays a decisive role in the technology innovation activities of enterprises, and he summarized the impact of different governance models (owners, shareholding structures, monitoring entities, and manager sources) on enterprise innovation [25]. 1. Problems in the Corporate Governance System The agency issue arises from the separation of enterprise ownership and control [26], while corporate governance is a set of institutional arrangements for solving agency problems [27]. Taking the governance structures of Chinese central enterprises as an example, its internal and external governance mechanisms can be further improved. In addition to the deficiencies in the board system itself, the external governance mechanism also shows that the market system is not perfect. Besides, there is a lack of internal governance mechanisms, including the lack of effective checks and balances and incentives among the basic elements such as shareholders’ meetings, board of directors, board of supervisors, and senior management. The single ownership structure of state-owned holdings, as well as traditional systems and cultures, have caused a significant lack of innovation motivation. Hua Jinyang once referred to the governance model of Chinese state-owned enterprises as “the traditional governance model of Chinese state-owned enterprises”: In terms of innovation, there are too many short-term behaviors, without considering the preservation and appreciation of corporate assets, and there is a lack of supporting cultures and organizations; innovation projects are biased towards government-driven, and independent innovation is insufficient [25]. 2. The Role of the Board of Directors and Independent Directors in the Development of Innovation Strategy The board of directors is the backbone of corporate governance, its design and operation represent different corporate governance models. In terms of the structure of the board of directors, the most important factors are the concurrent participation of the CEO and the chairman, the size of the board of directors, and the proportion of independent directors. Jensen believes that the size of the board should not be too large [21]. When the number of board members exceeds 7 or 8, the board cannot function

2.3 The Evolution of Enterprise Innovation System [10] Fig. 2.6 The internal innovation governance structure within Haike group

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effectively. Since then, Zahra et al., [28] after investigating medium-sized US manufacturing companies, found that there is indeed an inverted U-shaped relationship between board size and enterprise innovation. Take Chinese central enterprises as an example, the State-owned Assets Supervision and Administration Commission of the State Council has 115 central enterprise and corporations, more than 60 have set up board of directors, and CEO and chairman concurrently hold posts within 22 companies. The size of the board of directors is also uneven (3–14 people), of which the most common size is 9 people in a board of directors, about 30% of the total number of enterprises. Companies with large or minimal board sizes need further consideration and adjustment. In addition to the size of the board of directors, the CEO and the chairman of the company, the layout of the governance structure also needs to be considered. In the governance structure, an innovation management committee can be established, such as the governance structure of Sany and Haike Group: a top-down, market-driven three-level innovation management system featuring the model of “Board-Innovation Committee-Innovation Management Office” will ensure the smooth implementation of innovation ideas, as shown in Fig. 2.6. Besides, the independent director system is considered a cure for the problem of corporate governance [29]. The introduction of independent directors can avoid the “path dependence” of internal directors on the core technology. That independent directors participate in the innovation strategy as an outsider, will help improve the board’s ability to innovate, enable companies to make more scientific and innovative decisions [30] and enhance the profitability [31]. The independent director system of central enterprises is a breakthrough in breaking down the old system and establishing a new system by central enterprises, and it is the key to eliminating “internal control” fundamentally. Jia Shenghua and Chen Honghui believe that there is a U-shaped relationship between the independence of the board of directors and the quality of decision-making by the board of directors [32]. Regarding the proportion of independent directors in the board of directors, the OECD survey in 1999 showed that the proportion of independent directors of listed companies in developed countries is relatively high, 89% in Switzerland, 85% in

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Sweden, 82% in France, 78% in Belgium, and 77% in US [13]. As of now, the proportion of independent directors in the board of directors in Chinese central enterprises is 33%, which is significantly lower than those in developed countries. The low proportion of independent directors indicates that they are in a weak position in the board of directors of central enterprises. In addition, the establishment of independent directors of Chinese central enterprises is highly administrative. Although listed companies generally establish independent directors, they are still limited by the malignant cycle of “large shareholder/internal control board—the board of directors elected independent directors—the independent directors’ checks and balance ability and supervision abilities are weakened” [33]. Coupled with the influence of Chinese culture of giving priority to the government, leaders of central enterprises often do not allow others to intervene in their decision-making, resulting in the ineffective position of independent directors and the its function. To change this situation, the external environment must be improved for the effective implementation of the independent director system, such as establishing and improving an effective property rights market and an effective human resources market and promoting the establishment of information security systems for independent directors. In addition, it is also important to formulate a reasonable compensation system, establish an effective incentive mechanism, form a credit mechanism for independent directors, and fully mobilize the enthusiasm of independent directors to participate in decision-making and play a supervisory role. Therefore, the key to the normal function of independent directors is to create a good institutional mechanism to manage the size and responsibilities of independent directors. For example, Shenhua and Zoomlion have set up the sound independent director systems, which provide all necessary conditions for independent directors to perform their duties, such as the system, organization, procedures, and also ensure the quality and proportion of independent directors [34]. Shenhua adheres to the independence of independent directors, enables independent directors to exercise supervisory functions, participates in the formation of major decisions of the company. It plays an important role in the company’s standard operation, and safeguards the legitimate rights and interests of minority shareholders. 3. The Role of Management in the Development of Innovative Strategies Corporate management also has a significant impact on corporate innovation [35]. The management assists the board of directors to formulate an innovation strategy as an implementing agency in corporate governance, and deliver innovative strategic decisions and control the risks. Roberts studied strategic management benchmarks of 400 companies in Japan, North America, and Europe and found that management (technical CEO, chief technology officer (CTO), chief financial officer (CFO), etc.) plays a decisive role in the implementation of effective strategies for the promotion of enterprises [36]. As the final decision-maker in the company’s finance and accounting field, CFO clearly grasps the information of enterprise cost, value and risk, and plays an important role in the innovative investment decision-making process [37]. However, the role and functions of CFO are largely different in Chinese and foreign enterprises

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[38]. First, in terms of status, CFO, CEO and the chairman enjoy an equally important position in foreign countries, but CFO in China cannot reach such a high position. Second, in terms of roles, CFOs in foreign companies perform not only traditional financial budgeting but also serve as partners of the board of directors, shareholders, auditors, and regulatory authorities, and a think tank for the company’s development. Therefore, the CFO at a foreign company has a path to grow into a CEO. In contrast, most companies in China refer to the chief financial officer as the chief accountant or chief financial officer, and a small part as the chief economist [13]. The difference between a CFO and a chief accountant is that CFO has a higher status, and their responsibilities and roles are greater than that of a chief accountant. The chief accountant in charge of the unit’s financial accounting has only limited decisionmaking power in the accounting department. CFOs are second only to CEOs in companies in Western countries. In addition to its financial and accounting responsibilities, CFO also participates in major business decisions. The difference between the chief financial officer and the CFO is that the former is a member of the management team, while the latter is a member of the board of directors. Together with the CEO and the COO (chief operating officer), they become three indispensable insiders on the board. If it is a small company, the chief financial officer can attend the board meeting. The CFO is independent from other members of the management team, including the CEO in the personnel relationship, and is appointed and removed by the board of directors and serves for the board of directors and shareholders. For Chinese enterprises, they can learn from the foreign experience and introduce the CFO mechanism, and guarantee the CFO’s position in the enterprise from the system, and give the CFO authority, so that the CFO is not only responsible for the internal management control of the enterprise, but also enters the board of directors according to legal procedures. Roberts studied the contribution of the technical background of corporate executives to corporate innovation and found that there was no significant correlation between the two. But a CEO with a good technical background is highly relevant to the level of globalization of the company, resulting in a more competitive technology strategy, reducing break-even time, and more acceptable to the CTO to enter the board of directors or executive team. For example, Schlumberger’s CEO Paal Kibsgaard, Executive Vice President of Technology and the company’s chief scientist Ashok Belani, and Jean-Francois Poupeau, who is in charge of the group’s strategic development, all of them have master’s degrees in petroleum engineering and have a strong technical background. It is the technical background of the core executives that has made Schlumberger always advocate technological innovation and lead the trend of industry development. Roberts found that the success of Japanese companies is largely related to the company’s CTO. Among the 400 companies surveyed across the world, more than 90% of Japanese companies have CTOs that are also board members, far higher than those in Europe and the United States, as shown in Fig. 2.7. Japan also has the highest proportion of CTOs as members of the executive team, as shown in Fig. 2.8. Medcof pointed out that the company’s CTO has great influence on the company’s strategy, which can accentuate the impact oftechnical factors on corporate strategies [39]. Take Chinese enterprises as an example, a typical central

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enterprise generally does not have a CTO position but the role is played by a chief engineer. However, the chief engineer is already a historical position and should be promoted to the height of the CTO in the future. In addition, taking China’s central enterprises as an example, based on the status of their chief engineers in the management, one can see that Chinese enterprises generally do not place high importance to the status of chief engineers. Only 15 out of the 115 central enterprises have listed chief engineers as senior executives. This will affect the technological innovation strategies of central enterprises. However, CTOs usually focus on technological innovation and are insufficient in the knowledge of the company’s strategies and markets. The CINO position was proposed in 1988 [40], and currently some of the world’s leading companies, such as AMD, Citigroup, Dupont, Airbus SAS, Coca-Cola, Pepsi. (Pepsi-Cola), Xerox, have set up CINO positions. CINO can provide a forward-looking and urgency strategic direction for companies to achieve sustainable innovation. CINO is the ability and

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Fig. 2.8 Proportion of companies with CTO as executive members. Resource Roberts [36]

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motivation for enterprises to explore learning and development, implement innovative processes, and adopt innovative tools to enable enterprises to coordinate innovation across functions, departments and regions. In Chinese companies, usually different vice presidents are responsible for different things such as basic R&D, new product development, corporate culture, corporate strategy development, information. Given the fact that innovation goes throughout the company’s operations, it is necessary to set up a CINO position that is responsible for managing innovation-related matters. In addition to being responsible for the innovation of the company’s products/services, Billy Edwards, Chief Innovation Officer of Speedway Semiconductor, needs to find new business models or bring together new ideas from customers and develop new and innovative organizational structures and corporate culture. In other words, a CINO needs to be a mix of marketers, technical experts, strategists and businessmen.

2.3.4 Fourth Generation: Innovative Ecosystem The term “ecosystem” was proposed by Moore [41, 42]. Enterprise ecosystem is a dynamic structure system composed of organizations or groups with certain interests, such as customers, suppliers, major manufacturers, investors, trade partners, standard-setting organizations, labor unions, government, social public service organizations and other stakeholders. Iansiti and Levien [43], Zahra and Nambisan [44] also elaborated on the corporate ecosystem from the perspectives of niche, dynamic structure of ecosystem and corporate ecological networks. From a systematic perspective, companies are no longer members of a single industry, but part of an ecosystem that spans multiple industries. First of all, the way in which various elements of the enterprise ecosystem are linked and functioned is the basis for the existence and development of the system, and also the guarantee for the stability of the system [45]. Secondly, a staggered, multi-dimensional network structure is formed between similar and different types of enterprises and between upstream and downstream business chain members, as shown in Fig. 2.9. The main difference between this network and the traditional network is its complexity, dynamics and crossover. Victor et al. believe that if there are (n − 1)/2 cooperative nodes between the innovation entities of the traditional innovation network, n(n − 1)/2 cooperative nodes may be generated between the innovation entities of the innovation ecosystem. Therefore, the network nodes of the innovation ecosystem are n times more than the traditional innovative network connection nodes, which is the network multiplication effect of the innovation ecosystem [46]. The advantages of inter-organizational cooperation brought about by the network multiplication effect can be explained by transaction costs, resource views and strategic decisions. For transaction costs, inter-organizational cooperation can increase return on assets, increase inter-organizational efficiency, and internalize and minimize external transaction costs, thereby reducing unit costs. For the resource concept, inter-organizational cooperation helps organizations to achieve control over

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Traditional innovation network

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Fig. 2.9 Traditional innovation network and innovation eco network cooperation node diagram. Source Hwang and Horowitt [46]

key resources and integrate complementary resources of different organizations. For strategic decision-making, inter-organizational collaboration can synergize and expand market capabilities to improve organizational performance. For example, in the design of the innovation ecosystem of Haike Group, Haike Group takes the innovation committee as the core, and builds a good ecological system with venture capital, peers, government, universities/scientific institutes and consulting companies to promote innovation, as shown in Fig. 2.10. The success of companies such as Apple, IBM, Procter & Gamble, and Eli Lilly also shows that it is not enough to focus on their own internal capabilities. They must also consider the characteristics and needs of other ecological partners in the ecosystem, and build a dynamic and open business ecosystem centered on the enterprise itself. The innovation ecosystem is a coordinated system of innovative total factor resources, not only involving the ecosystem between enterprises, but also the innovation of all employees within the enterprise [47]. Haier, Baosteel and Geely have achieved high results in the innovation of all employees. In 2005, before Geely Automobile underwent a strategic transformation, the company officially launched the “Yuan Power” project, which represents the innovation of all employees. “Yuan Power” project is a series of innovative management methods, management ideas and management concepts that will improve the satisfaction, ownership, motivation and creativity of employees. The company units its staff together and brings their strengths into full play, takes all possible means to improve employees’ satisfaction, and gives every employee a sense of ownership. By fully mobilizing employees to take the initiative, show their enthusiasm and creativity in enterprise management, fully tap their wisdom and potential, transform their thinking into the driving force for the enterprise’s development, enhance the market competitiveness and sustainable development of the enterprise. Geely wants to realize the strategic transformation of “making the safest, most environmentally friendly and energy-efficient cars and build Geely Automobile into a global brand”. Always responsible for the brand, always satisfying customers with good quality, and relying on the good work of the

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Fig. 2.10 Haike group ecosystem design

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employees, the company promotes its “Yuan Power” project has greatly accelerated its strategic transformation. As shown in Fig. 2.11, the economic benefits created by the Geely employee proposal are growing. From the increase of 8.98 million yuan in 2005 to 54.43 million yuan in 2009, it shows that enterprises pay more and more attention to the implementation effect of the proposal, and employees also turn their focus from small innovation at the beginning to the benefits of major innovation for the enterprise. In the twenty-first century, enterprise technology innovation has entered a new era. Strengthening technology accumulation and forward-looking deployment are prerequisites for grasping new opportunities of the times. Enterprises should not only pay attention to the development of new technologies, but also make greater 5443

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contributions to national industrial security, information security, and even national economic security and military security. Strengthening the core competitiveness and control of enterprises is the focus of independent innovation and development of enterprises. To this end, while building an innovative ecosystem, it is necessary to focus on the building of innovative capabilities, not only to integrate innovation resources, but also to focus on the core capacity building of enterprises. In order to better assume the mission and responsibility of the “national team” and continue the concept of national interests above all else, China Electronic Technology Group put forward the strategic goal of “domestic excellence and worldclass”. Focusing on the strategic objectives, China Electronics Technology Group deployed and implemented the science and technology system reform project of “reconstructing technology innovation system and creating technological innovation format”. The first is to highlight technical and cutting-edge research. Promote technological innovation from tracking to autonomous and enhance original innovation capabilities. Increase investment, sort out key technologies according to the theme and system, focus on basic, cutting-edge and marginal and highly permeable technologies, maintain high investment in science and technology, and continuously optimize the direction of science and technology investment. Over the past decade, the accumulated investment in scientific research activities has exceeded RMB 100 billion, accounting for 17% of total revenue, of which RMB 40 billion has been invested in science and technology innovation, accounting for 7% of total revenue. At the same time, in the field of basic technology, advocate more pure innovation, avoiding the value of technology measured entirely by market thinking. The second is to highlight system elements and systematically innovate. Only by systematically innovating in order to be able to form the greatest value can avoid the fragmentation of technological innovation. Deepen the research and formulation of the Group’s innovative development plan and decompose the theme and system key technologies step by step, using WBS (work breakdown structure) and technology maturity evaluation methods to evaluate the maturity of key technologies. On this basis, increasing the integration of internal scientific resources. According to the system elements, the system is reconstructed into a system of technological innovation, and key technologies are laid out to ensure the integrity of key technologies required for major systems. In the actual process, it is necessary to pay attention to the connection and coordination of upstream and downstream technologies such as systems and achieve group breakthroughs in key technologies. The third is to highlight collaborative innovation with multiple disciplines and multiple resources. Collaborative innovation is the requirement to build a national innovation system and implement an innovationdriven development strategy. Actively strengthen cooperation and exchanges with domestic and foreign university enterprises and innovation institutions, and establish technological industry innovation alliances in key areas to form close technological innovation cooperation. For example, 11 companies including China Electronics Technology Group and Xi’an University of Electronic Science and Technology have jointly developed radar technology and have established stable strategic cooperation with other enterprises and scientific research institutions at home and abroad. For the specific technology and project long-term cooperation to form a flexible

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innovation model. The fourth is to actively explore ways to market and allocate innovative resources. In order to break the inherent pattern, stimulate top-down innovation vitality, and actively change the traditional project declaration, expert review, and decision-making mode, the creative innovation contest was implemented in the member units to stimulate the innovation enthusiasm of young scientific and technological talents, which create a culture of innovation from the top down in the whole system. In two years, it achieved good results and expanded the scope of the creative innovation contest to the world in 2014 [48]. The practice of China Electronics Technology Group not only highlights the company’s attention to core competence and core technology, but also emphasizes the synergy of innovation, integration of production and research, innovation resources and employee innovation passion, which is an important benchmark for the establishment of enterprise technology innovation system.

2.4 Enlightenment of Enterprise Innovation System From the author’s concept of “enterprise innovation system” in 1999, to the discussion of the connotation, structure, characteristics, evolution and other aspects of enterprise innovation system, the enterprise innovation system regards the enterprise as a combination between elements through a holistic perspective, and regard innovation performance as the result of self-organizing combination and integration of relevant elements of enterprise innovation under complex conditions. From the perspective of a system, the process of enterprise innovation has become a strategic, dynamic and systematic process [49]. Enterprise innovation is no longer focused on the linear process of innovation input-output, but becomes the dynamic evolution process of innovation factor combination and synergy [50]. Therefore, building an enterprise innovation system and realizing the organic combination and value creation of the elements within the enterprise innovation system become the key to the company’s sustainable competitive advantage. At the same time, the concept of enterprise innovation system also provides theoretical contribution and knowledge increment for the development of innovation system theory research paradigm. The specific performance is as follows. (1) The introduction of the enterprise innovation system extends the concept of innovation system from a macro perspective and a medium perspective to a micro perspective of the enterprise as a boundary. Under the evolution of the paradigm of innovation system concept, the existing research that focuses on the “national innovation system” research [51–53] with the state as the situational difference at the macro level as well as the research on the “industry innovation system” [54–63] and the “regional innovation system” [57–59] with industry and region as the situational industry at the meso level does not extend to the discussion of the enterprise level. As a combination of resources and capabilities, enterprises’ strategic, research and development, marketing, production,

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manufacturing, institutional culture and other factors have become the key to the improvement of corporate innovation performance and competitive advantage. The enterprise innovation system thus provides a mechanism for the dynamic analysis of how the various elements and functional units of the enterprise interact and realize the output of innovation value by taking the elements as the composition and taking the enterprise as the boundary. It also provides research ideas for opening the “black box” mechanism of the nonlinear combination of enterprise innovation elements. This description of the interaction, entirety, and dynamic processes of the enterprise as a system unit is conducive to enriching the micro-discussion of the research paradigm of the innovation system. (2) The introduction of the enterprise innovation system helps to deeply understand the non-linear, complex, combinative, and holistic aspects of the enterprise innovation process, so as to scientifically guide the value output of innovation. The essence of innovation stems from the recombination of elements [60]. The innovation system based on enterprises should emphasize more on the synergy and coupling of technical elements, market elements, and organizational management elements [61]. The discussion of traditional technological innovation and research and development is no longer the sole determinant of corporate innovation performance [62]. On the contrary, the interaction between technology and market [63], the synergy between innovation efficiency and innovation benefit [64], and the innovative business model [65, 66] have become important factors in the innovation process. The nonlinear combination of elements becomes the core of innovation, mainly in four aspects [50]: First, the combination of technological innovation projects. The most important of these is the combination of progressive innovation projects and major innovation projects. In general, technological innovation projects can be divided into incremental innovation projects and radical innovation projects according to their importance. Incremental innovation projects and radical innovation projects have great economic significance for enterprises. However, due to the limited resources, enterprises must have a balanced consideration in the selection of incremental innovation projects and radical innovation projects. Second, the combination of product innovation and process innovation. It is difficult for a simple product to maintain its competitive benefits for a long time, and it must rely on process innovation. The existing process base must be considered in the product innovation process. Therefore, the combination of product and process innovation constitutes the foundation of the realization of enterprise combination innovation benefit. Third, the combination of technological innovation and organization and cultural innovation. Generally speaking, the system is the norm to the organization and culture, and the organization and culture are the specific existence of the system. The frequency and scale of enterprise technology innovation depends on the organizational structure and cultural atmosphere of the enterprise. Therefore, from the perspective of institutional innovation, the research on enterprise technology innovation is specifically refined into the synergy relationship between technological innovation and organization and cultural innovation. Fourth, the combination of innovative system elements. Innovation is a

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concrete manifestation of corporate values and corporate missions. It is formed in the process of repeatedly weighing innovation ideas and corporate environment and conditions. A technological innovation project is the specific operation under its enterprise innovation system. The structure and function of the enterprise innovation system affect the level of enterprise innovation (introduction or independent development) and frequency. (3) The reflection on the concept of enterprise innovation system helps to realize the learning and coordination of the internal innovation process, and then expands the research of innovation theory. The enterprise innovation system concept puts the technical elements, market elements and organizational management elements into the same important conditions of enterprise innovation, effectively realizes the synergy between the technical and non-technical elements needed for innovation in the innovation process, and promotes the innovative learning of enterprise personnel [49]. This kind of system thinking breaks the interface barriers of R&D, market, management and other functions, thus improving the success rate of enterprise innovation projects. Technological innovation, market innovation and organizational innovation are the complement and perfection of the system level for the traditional concept of innovation to emphasize the single function of innovation. In this way, it conveys the learning cooperation of the functional departments of the enterprise, and realizes the basic viewpoint of the output of innovation performance through the coordination of the functional departments. At the same time, in the context of external environments such as networking, information application and globalization, companies often need to form alliances with users, suppliers, complementary companies, and even competitors to participate in the cooperation of innovative projects and exchange information or other resources to complete an innovation [67]. How the enterprise innovation system extends the enterprise organization, realizes the coordination of the actor and resources across the organization boundary, and studies together, becomes the frontier hotspot of the innovation management theory as well as the development frontier of the enterprise innovation system evolution [10]. What needs to be emphasized is that the evolution of the enterprise innovation system is not simply a replacement between generations but is constantly superimposed and pushed forward. The innovation system is evolving in a complex, ecological direction. The future enterprise innovation system should be based on the core technology and core competence system, that is, to strengthen the open innovation ecosystem based on internal research and development. At the same time, the enterprise innovation system should pay special attention to the development of core competence and core technology, and strengthen the role of corporate leaders and management teams in innovation decision-making and innovation governance, further strengthen the setting of the enterprise CINO that exceeds the role of chief engineer, further increase investment in research and development, especially advanced research and development, strengthen the construction of enterprise research institutes facing the frontier of science and technology while strengthening the construction of enterprise technology centers, strengthen the construction of high-end

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R&D and innovative talents, and attach importance to the development and status of skilled employees. The design of the innovation system should also actively cross the external boundaries, strengthen cooperation with leading universities, research institutions, users, etc., and carry out active technology mergers and acquisitions to enrich and improve the company’s ability to acquire innovative resources and actively integrate or discrete technological innovation results. The competition of the future enterprise innovation ability is whether the enterprise can construct the innovation ecosystem based on the core competence.

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51. Freeman C (1995) The national innovation systems in historical perspective. Camb J Econ 19(1):5–24 52. Lundvall BA (1992) National systems of innovation: towards a theory of innovation and interactive learning. Pinter Publishers, London 53. Nelson RR (1993) National innovation systems: a comparative analysis. Oxford University Press, Oxford 54. Breschi S, Malerba F (1997), Sectoral systems of innovation: technological regimes, Schumpeterian dynamics and spatial boundaries. In: Edquist C (ed.) Systems of Innovation: Technologies, Institutions and Organizations, Routledge Press, London, pp 130–156 55. Malerba F (2002) Sectoral systems of innovation and production. Res Policy 31(2):247–264 56. Malerba F (2004) Sectoral systems of innovation: concepts, issues and analyses of six major sectors in Europe. Cambridge University Press, Cambridge 57. Cooke P (1992) Regional innovation systems: competitive regulation in the new Europe. Geoforum 23(3):365–382 58. Cooke P, Uranga MG, Etxebarria G (1997) Regional innovation systems: institutional and organisational dimensions. Res Policy 26(4):475–491 59. Cooke PN, Heidenreich M, Braczyk HJ (2004) Regional innovation systems: the role of governance in a globalized world. Psychology Press, London 60. Schumpeter JA (1934) The theory of economic development. Harvard University Press, Cambridge 61. Tidd J, Bessant J, Pavitt K (2005) Managing innovation: integrating technological, market and organizational change. Wiley, New York 62. Edquist C, Eriksson ML, Sjögren H (2002) Characteristics of collaboration in product innovation in the regional system of innovation of East Gothia. Eur Plan Stud 10(5):563–581 63. Kokko A (1994) Technology, market characteristics, and spillovers. J Dev Econ 43(2):279–293 64. Diener K, Piller FT (2010) The market for open innovation: increasing the efficiency and effectiveness of the innovation process. RWTH Aachen University, Technology & Innovation Management Group 65. Chesbrough H (2010) Business model innovation: opportunities and barriers. Long Range Plann 43(2):354–363 66. Amit R, Zott C (2012) Creating value through business model innovation. MIT Sloan Manage Rev 53(3):41 67. Dodgson M (1994) Technological collaboration and innovation. In: Dodgson M, Rothwell R (eds) The handbook of industrial innovation. Edward Elgar, London, pp 285–292

Chapter 3

Innovation Ecosystem

In this era, most companies inhabit ecosystems that transcend their industrial boundaries. Marco Iansiti, Professor, Harvard Business School, USA

3.1 The Background, Significance and Paradigm Evolution of Innovation Ecosystem 3.1.1 The Background of Innovation Ecosystem Innovation is the source of development. At present, a new round of global technological revolution and industrial transformation is coming, and the world’s major economies have formulated and implemented innovation strategies to seize the commanding heights of development. China is now promoting innovation-driven development strategy, and its economic development has entered a new normal, one important feature is the shifting of growth momentum from factor-driven and investment-driven to innovation-driven. More and more enterprises, especially large multinationals, have placed innovation at a more important position, focusing on innovation to win a sustainable competitive advantage. The role of innovation in the development of a country or enterprise is increasingly important. Innovation is the key to improving competitive advantage of enterprise in a constantly changing environment [1, 2]. However, under the condition of economic globalization and information application, technological complexity, innovation risk, and market uncertainty prevent any organization from having all the resources and technologies needed for development [3]. Organizations are becoming more dependent on external resources, and independent innovation becomes more difficult. In early 1990s, the Swedish Innovation School put forward “no business is an island”. The resource constraints and cognitive limitations of single organizations are inherently inconsistent with the complexity © Science Press 2023 J. Chen, Enterprise Innovation Ecosystem, https://doi.org/10.1007/978-981-99-3374-7_3

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and risk of business and innovation activities. The role of innovation in the promotion of organizational competitive advantage and the implementation mechanism of innovation at the inter-organization level have triggered long-term attention in the academic and business circles. From the perspective of innovation, for a country that wants to improve its innovation capabilities, planning the direction of innovation is very important, and perfecting the ecology of innovation is more important and meaningful. New technologies, products, and industries are usually not planned by the government, but realized by innovative talents through free exploration and market competition. To this end, we should aim at “inspiring the passion of innovation in the whole society” and make great efforts to create an innovation ecology [4]. Compared with developed countries and newly industrialized countries, there is still a huge gap in technological innovation between China and these countries, and the independent innovation capability of China is still weak. The reason is that the technological innovation work of Chinese enterprises is still stuck in the deployment of R&D resources and the improvement of R&D system, and they did not have the innovation ecosystems established like the international innovation enterprises such as Apple, Google, Siemens, P&G. Nowadays and in the future, innovation increasingly requires the participation of heterogeneous member bodies to form a healthy innovation ecosystem [5]. Organizational competition is no longer limited to between enterprises and enterprises, but gradually extends to ecosystems [6].

3.1.2 Research Significance of the Innovation Ecosystem Since the nature of the enterprise was proposed by Coase, the market and the bureaucracy have occupied the core of economic organization analysis. With the evolution of research, the organizational innovation ecosystem has become the third form of modern commercial organizations outside the market and under the bureaucracy [7, 8]. Having received great attention at the level of practice and research, the ecosystem also reflects important research significance. (1) The innovation ecosystem is an important support for the national competition advantage. In 2004, the US President’s Science and Technology Advisory Committee released two reports on “Sustaining the Nation’s Innovation Ecosystems, Information Technology Manufacturing and Competitiveness” [9] and “Sustaining the Nation’s Innovation Ecosystem: Maintaining the Strength of Our Science & Engineering Capabilities”, which emphasized the value of the innovation ecosystem for the competitiveness and continuous prosperity of the United States as a supporting factor and driving factor for national competitiveness. In 2013, the European Union released “Open Innovation 2.0”, pointing out that the current development focus in Europe lies in the four-helix EU innovation ecosystem [10]—“Government (Public Institutions)—Enterprises (Industry)— University Research—Users (People)” of the “Horizon 2020” program. Meanwhile, the “Dublin Declaration” was issued and 11 policies and policy paths

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focused on the innovation ecosystem were deployed. In 2006, the Party Central Committee deployed and implemented The Outline of the National Medium- and Long-Term Science and Technology Development Plan (2006–2020), emphasizing the capacity building of independent innovation. The 18th National Congress of the Communist Party of China clearly stated that “scientific and technological innovation is the strategic support for improving social productivity and overall national strength” and establishing “innovation-driven development strategy.” As an important support for innovation-driven development, the innovation ecosystem is concerned by national policy. The 2013 Summer Davos Forum was themed on “Innovation, Imperative”, emphasizing that when economic systems, development environment, industrial enterprises are facing the continuous technological and management innovation of emerging industries such as mobile internet, cloud computing, and governance systems, it should be an open, evolving, and dynamic system, an “ecosystem” with strong vitality [11]. The major developed countries and regions in the world attach importance to the new innovation paradigm of “innovation ecosystem” and raise it to the level of national strategic deployment [12]. For China in the development stage, the characteristics and mechanism of the innovation ecosystem under the background of institutional and economic transformation need to be studied. (2) The innovation ecosystem is a typical model for regional sustainable development. The innovation ecosystem should first be a successful regional innovation system, followed by successful enterprise innovation platforms and new industries [13, 14]. With the evolution and practice of regional innovation ecosystems, the global regional innovation ecosystem has gradually formed a successful model for supporting sustainable development in the region. Successful cases include: A benchmark for regional innovation ecosystems centered on Stanford’s knowledge radiation and entrepreneurship—Silicon Valley [15], USA; Effectively implement the division of labor, specialization, and high-tech industrial clusters in collaboration—the Bangalore Software Technology Park in India [16, 17]; Zhongguancun Haidian Science and Technology Park, which interacts with the regional innovation network and the ecological environment of the technology industry and realizes the evolution of the regional innovation system [18], etc. Therefore, the regional development model, practical characteristics and policy influence of the innovation ecosystem have important practical significance. (3) The innovation ecosystem is a key factor in industrial innovation practice and industrial transformation and upgrading. With the horizontal division of labor and the vertical integration frequency of the global industrial chain, industrial innovation has further turned to the development trend of spatial agglomeration, resource interaction, industry-university-research collaboration. The logic of the innovation ecosystem reconsiders the relationship between industry chain heterogeneity organization competition and enterprise, emphasizing that the technology innovation ecosystem achieves overall coupling through technology

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patent licensing, collaborative R&D and technical standards promotion cooperation [19]. At the same time, since Professor Utterback of the Massachusetts Institute of Technology and Professor Abernathy of Harvard University proposed the matching between the dynamic evolution of product innovation and process innovation in the technological innovation of the US automotive industry and the industrial organization cycle [20], the technology track has become the core of ecosystem development [21], emphasizing that the development track of multiple technological innovations will participate in market competition until the evolution of ecosystems forms industry-led design [22]. In this way, the industrial attributes and impact mechanisms of the innovation ecosystem are deeply explored, which has become an important factor for enterprises to achieve competitive advantages, participate in international industrial chain division and cooperation, and achieve industrial transformation and upgrading. (4) The innovation ecosystem is the core of improving the innovation ability of enterprises. The innovation ecosystem is composed of economic actors, and the community of individuals whose fate is related to the overall fate [23]. It is carefully designed and co-evolved to create value for members through joint innovation [7]. The enterprise evolves with its innovation ecosystem, and its ability to create value depends on the collaboration of organization in the production of complementary products or services in the ecosystem [24, 25]. An innovation ecosystem can guide [6, 26–28] innovation activities in business operations and provide a basis for corporate strategy development [28–30]. As a part member of the ecosystem, the participation of enterprises in organizing the ecosystem is determined by their own resources and capabilities, and there are also different risks [31]. The basic logic of activities and business models in the enterprise innovation ecosystem needs to be matched with resources, capabilities, risks and development models, thus providing an important guarantee for the improvement of enterprise innovation capability and competitive advantage [31]. Therefore, for the Chinese enterprises under the conditions of transitional economy, the characteristics of the results of the enterprise innovation ecosystem and its interaction with its own strategy and organizational structure need to be further studied.

3.1.3 Paradigm Foundation of the Innovation Ecosystem [32] The paradigm of the enterprise innovation ecosystem comes from the rise and development of the open innovation paradigm. The traditional concept of innovation believes that technological innovation is the soul of the enterprise. Therefore, it can only be carried out by the enterprise itself, thus ensuring technology confidentiality, technology exclusive, and thus maintaining a leading position in technology. Internal R&D is a strategic asset for the company. Within the large companies with strong technical and financial strength, they employ a large number of the world’s most creative scientific and technological talents, give them generous

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treatment and complete R&D facilities, invest sufficient R&D funds, and conduct a large number of basic and applied research. The research personnel produce many breakthrough ideas and research results, and these results are independently developed within the company. Through design and manufacture, they form new products, and enter the market through their own marketing channels, to commercialize and obtain huge profits. This type of internal closed innovation paradigm emphasizes linear advancement and illustrates the characteristics of innovation processes and innovation management under certain periods and conditions. As knowledge is created and spread faster, the flow of high-level talent and the prevalence of venture capital, enterprises are accelerating the pace of new product development and commercialization. Otherwise, researchers may use venture capital to start their own researches and commercialize these researches, instead of waiting for developers to design their researches into new products. In this way, the knowledge and technology within the enterprise will flow outside the company without any reward, and the huge investment in R&D will not produce any value. Therefore, under the conditions of knowledge economy, the closed innovation paradigm that prevailed in the past and made many enterprises gain competitive advantage no longer applies. In the process of R&D and project control, enterprises must simultaneously observe the instantaneous changes of market and technology and react quickly. With the deepening of economic globalization, enterprises are no longer isolated systems, and the boundaries between enterprises are gradually becoming blurred. The ability of enterprises to leverage and integrate external resources has become an important source of value-creation for enterprises. The open innovation paradigm believes that to improve technological capabilities, enterprises must simultaneously use internal and external knowledge and effectively integrate them, so that new ideas and new products or services developed can enter the market and be commercialized through internal or external channels, as shown in Fig. 3.1. Under the open innovation paradigm, the boundaries of enterprises are blurred. Innovative ideas mainly come from the R&D department or other departments within the company and may also originate from outside the company. Innovative ideas within the enterprise may spread to the outside through the flow of knowledge and the flow of people at any stage of research or development. Some research projects that are not suitable for the current business of the enterprise may be of great value in new markets and may be commercialized through external channels. Due to the large amount of rich knowledge and the rapid flow of knowledge, the scientific and technological personnel with innovative ideas in the enterprise are widely flowing among different enterprises. The existence of venture capital provides financial guarantee for the scientific and technological personnel. Various factors prompt enterprises to accelerate the speed of new product development and the rapid commercialization of it. On the basis of strengthening internal R&D, enterprises should closely monitor and track external knowledge and fully absorb and utilize external knowledge to bridge certain knowledge gaps. The organic integration of internal and external knowledge will reduce the technological uncertainty of technological innovation, thereby accelerating the speed of innovation. If the internal research and development projects of enterprise are not suitable for the current business operations, it will often be

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Research

Development New Market

Solution

The Boundaries of Enterprise Innovation Project

Internal R&D

Current Market

Technology M&A

External Project

Venture Investment

Technology License

Fig. 3.1 The mechanism of open innovation. Source Chesbrough [3]

terminated. Sometimes the projects may have been heavily invested and may be technically successful, which would result in a great waste of the project and the enthusiasm of the R&D staff. Under the open innovation paradigm, enterprises can continue to carry out research projects through external channels, or introduce innovative products that are not suitable for the current business of the company into new markets through external channels, and commercialize them, thereby reducing the uncertainty in technological innovation. Therefore, open innovation can reduce the technological and market uncertainty of enterprise technology innovation, thus avoiding the dilemma of innovation. Under the open innovation paradigm, innovation is no longer carried out in a traditional way, but as a global activity. The open innovation system can absorb more innovation elements and form a multi-agent innovation model based on innovation stakeholders. 1. Stakeholder No. 1: All Employees There are many differences between the innovation practice and the other practices, and there are also many similarities, such as quality management, process reengineering, enterprise resource planning and other good references from other cooperate practice. At the beginning, the enterprise designated specialized staff to be responsible for quality issues, and later, quality management became a part of the basic responsibilities of each functional department and manager. Most enterprises consistently underestimate the innovation potential of ordinary employees, and often set many work standards, which greatly hinders employees from thinking. In fact, front-line employees have a keener observation of the operating conditions of the enterprise and customer needs, so that stimulating and nurturing the enthusiasm of ordinary employees is more conducive to creating value for customers. Embed innovation into every cell of the organization, establish a common understanding of

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innovation within the enterprise, so that employees of the entire enterprise will have a sense of responsibility to propose innovative ideas. For example, Shanghai Baosteel Group advocated a new concept of “all employees can make a difference through innovation” and established the basis of innovation in the improvement of daily work for each position, each process, and each department, and encouraged everyone to participate in the invention. It created and advocated a new concept of “tolerating failure and creating an atmosphere of innovation”, thus mobilizing the enthusiasm and ingenuity of the scientific and technological personnel and employees, and greatly enhancing the innovation vitality of the enterprise. In Baosteel, mass technology innovation activities are unprecedentedly active. In 2002, its employees proposed 44,371 proposals for rationalization, all of which were implemented, and as a result, an economic benefits of RMB 677 million were created. At present, the employees have an average of 16.03 rationalization results per day, making up an average of 4 technological secrets every 5 days. 2. Stakeholder No. 2: Leading Users User knowledge is the most important knowledge of enterprise innovation, and good new product ideas come from the observation and listening to customers. Kleinschnidt and Cooper studied 252 new products from 123 companies and concluded that: Most new products come from customers’ ideas, instead of brainstorming sessions or mature R&D activities within the company [33]. Therefore, mining user knowledge, understanding user needs, and confirming market trends are indispensable for the technological innovation of enterprises. Successful innovators pay more attention to the market and have a better understanding of user needs. For example, 3M develops more than 200 new products every year. In the process of developing new products, 3M has always maintained close contact with customers, requiring researchers, salesmen and managers to approach customers frequently and invite them to help with the new products development. At every stage of new product development, it re-evaluates the preferences of customers. The traditional concept of product development believes that creating new products is the responsibility of internal R&D personnel, and the responsibility for product development is borne by the company. Traditional new product development processes also include user surveys and market research analysis to identify demands and understand the potential market for the product. However, obtaining demand information directly from ordinary users is greatly limited. Because the users’ need for new products and the possible solutions are limited by practical experience and existing knowledge. It is impossible for ordinary users to propose new product concepts that are in conflict with existing products that are familiar with them. It is also difficult for them to accurately evaluate the attributes of new products, and to accurately describe the future market demand of new products. Therefore, in the early pre-development activities of technological innovation, through the analysis of ordinary users, usually only the improvement of existing products can be realized. Traditional product development is a long-lasting process: The manufacturer cannot collect complete and comprehensive demand information, develop product prototypes based on one-sided information, and submit them to the user for trial use;

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the user finds the defects and gives feedback to the manufacturer; the manufacturer modifies according to the user’s feedbacks. This process loop between the vendor and the user until a satisfactory solution emerges. Many researchers have found that many important innovations are initially proposed by leading users to introduce new product concepts, detailing the products they need, and even developing prototypes by themselves. Leading users have a special experience, they have a strong demand of getting benefits from the product before it appears on the market. They wish to get the product before it goes on the market, always trying to find a solution, and they are eager to develop new products at an early date. As a result, leading users may provide companies with information on new product concepts and designs that are important to innovation. Let users become the main body of innovation, and the leading users directly participate in the design and development process of the new product, so the development team can benefit from the development program data and demand information that the leading users have. Leading users can provide important information for the enterprise technological innovation, thereby accelerating the speed of new product development and reducing the uncertainty of technological innovation in the market. 3. Stakeholder No. 3: The Suppliers Establishing repetitive, long-lasting relationships with suppliers can leverage the external resources of the enterprise and help build a more resilient product development process. Allow suppliers to participate in the initial design and development of new products and continuously discuss with them. Repeated information exchange can accelerate the development of new products. The sooner you provide suppliers with information on new product plans, the sooner you get feedback from suppliers on new product prototypes, which will effectively shorten innovation cycles and promote innovation efficiency. Establishing a long-term, trusted network of partnerships with innovative suppliers is a source of competitive advantage, and it cannot be copied by other competitors. As a model of “suppliers participating in technological innovation”, Baosteel’s participation in the technological innovation model mainly includes the research model of “early intervention”, the mode of helping users to carry out technical improvement and the mode of participating in user product upgrading. The “early intervention” mode is generally entered at the beginning of the users’ new product development and cooperates with the user to innovate. In the development stage of the company’s users (automakers), Baosteel’s scientific and technical personnel are involved in the design, manufacture and material selection of their new models. They carry out the simulation analysis of the parts stamping forming, the reasonable selection of the mold debugging materials, participate in the mold adjustment test, the mold repair program analysis, the process parameter formulation and the blank size design. It transforms “after-sales service” into “presales service” and accelerates the development of new varieties according to the different needs of manufacturers. At the same time, it helps users shorten the development cycle of new products, reduce the risk of new product development, and

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jointly promote the vigorous development of China’s automobile manufacturing and steel manufacturing. Baosteel Group has established a good trust relationship with users by adopting the cooperative innovation model of “suppliers participating in technological innovation”. It has broken through the sales relationship between the upstream and downstream of the industry chain, and it has expanded into a mutually supportive strategic partnership to create competition. The supply chain of force cope with the fierce competition brought about by economic globalization. It created a competitive supply chain to cope with the fierce competition brought by economic globalization. 4. Stakeholder No. 4: Technological Partners In an economic environment characterized by economic globalization, technological complexity and informatization, technological innovation activities of enterprises increasingly require extensive professional capabilities. The resources needed for technological innovation such as capital, talent, information and knowledge are more diversified, and not limited to the inside of the enterprise. No company can obtain all the resources they need from the inside, even those large enterprises cannot do technological innovation activities alone. Strengthening technical cooperation between enterprises has become an important way for enterprises to break through their own resource constraints. The ability to effectively utilize and integrate external knowledge has become the key to improving the technological innovation capability of enterprises. Through technical cooperation, enterprises combine their complementary resources to accelerate the communication and sharing of information, promote the creation and effective transfer of knowledge and technology, improve the ability to cope with complex situations, share the risks and costs of technological innovation, and the success rate of it. Baosteel has extensively relied on the social technological power to promote technological advancement of enterprises and has carried out multi-channel and multilevel foreign technological cooperation. Baosteel implements the “borrowing idea” activity and uses social forces to form a strong scientific research force. It has kept extensive contact with domestic and foreign universities and research institutes and conducts scientific research cooperation and development in combination with its own reality. At present, the main forms of cooperation between Baosteel and the social technology forces include establishing a joint research group, forming a spare parts development center, jointly forming a postgraduate branch, establishing a postdoctoral workstation, signing a long-term cooperation agreement in a professional field, and forming a joint design professional company. In the social cooperation of scientific research, the development of Baosteel’s science and technology has broadened, and a number of major projects with high technical level, good application effect

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and breakthrough significance have emerged. The establishment of this technological innovation network based on trust and cooperation has greatly enhanced Baosteel’s R&D capabilities and response capabilities to the most advanced technology development information in the world today. 5. Stakeholder No. 5: Intellectual Property Professionals As technology continues to evolve toward integration, the degree of specialization of knowledge is increasing, and the complexity of technology is greatly enhanced. Even large enterprises with rich technical resources can only improve their core competitiveness within a limited range. Therefore, closely monitoring and tracking the development of external technologies, timely and economical purchase of technology to fill some aspects of the enterprise’s technical vacancies is another effective way to improve the success rate of technological innovation. For enterprises with strong technical capabilities, if they developed technologies that are not suitable for the current business, they can obtain license fees by selling intellectual property rights and profit from other companies applying their developed technologies. Enterprises can also promote the creation and effective transfer of knowledge and technology by selling their intellectual property rights, driving the development of science and technology in the industry. Under the open innovation system, technological innovation will no longer be a simple linear process, but a complex feedback mechanism, and the processes of forming complex interaction by science, technology, learning, production, policy, and demand. It will be more difficult for companies to innovate independently. It must innovate in the interactions with other organizations (suppliers, users, competitors and universities, research institutions, investment institutions, government agencies, etc.). Enterprises must successfully implement technological innovation. While strengthening internal R&D, they must pay close attention to the changing trends of external markets, knowledge and technology, and effectively utilize and integrate external knowledge. External knowledge and technology are important for the filling of knowledge gaps in internal research projects. The ability to effectively utilize and integrate external knowledge is the source of competitive advantage. Enterprises can economically and effectively acquire technologies suitable for their business operations through cooperative R&D, purchase of external technology licenses, technology mergers and acquisitions, etc., and reduce the cost and risk of technological innovation. Leading users and suppliers with innovation capabilities will be important sources and participants in technological innovation. As shown in Fig. 3.2.

3.1.4 Paradigm Evolution of the Innovation Ecosystem Based on the basic innovation research paradigm such as the innovation system paradigm and the open innovation paradigm, the innovation ecosystem research has

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Research

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Development New Market

Solution

The Boundaries of Enterprise Innovation Project

Internal R&D

Leading User and Supplier

External Project

Current Market

Technology M&A

Cooperative R&D

Technology License

Fig. 3.2 Improved open innovation model

been carried out, and the paradigm evolution from the national innovation system to the innovation ecosystem and from closed innovation to open innovation and collaborative innovation has been formed.1 1. Evolution from the National Innovation System Paradigm to the Innovation Ecosystem Paradigm Schumpeter believes that enterprises are the most important actor of innovation activities, and the ability of enterprises to innovate largely determines the overall economic strength of the country. In the theory of national innovation system, Freeman proposed that “the science and technology policy of the government plays an important role in technological innovation”. To this end, the independent innovation of enterprises needs the effective guide the state, the active idea inspiration of the university, and the in-depth technical support of the institute. The cooperation and development of government, industry, learning and research within the country further promotes innovation. However, the construction and improvement of the national innovation system is an evolving dynamic process. The shortcoming of the theory of the national innovation system is too simplistic, and the innovation activities of enterprises have gradually evolved from point-to-point and point-tonetwork to the systemic cooperation of network-to-network. Strategy formulation is no longer an internal activity, and companies must work together to develop a corporate strategy in conjunction with members of the innovation ecosystem [26]. Observing the surrounding companies, we can easily find that the success of Intel, Microsoft, IBM, Toyota and other companies benefit from its competitive innovation 1

The content of the evolution of the style is derived from: Chen [34].

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ecosystem; Both Wal-Mart and Alibaba have built their own innovation ecosystem at their core [35]. In the era of a globalized knowledge economy, providing only great products is not enough to make a company successful, and companies must measure the risks and benefits of innovation with external partners in a broader perspective [36]. In various industries, from consumer electronics to construction, from media to mining, leading companies have built an innovation ecosystem that coordinates suppliers, customers and other partners. Therefore, the success of enterprise innovation depends not only on the its own factors, but also on the network in which the company is located and the innovation ecosystem. The innovation ecosystem is a deepening of the national innovation system and will become a new research hotspot. 2. Evolution from Closed Innovation Paradigm to Open Innovation and Collaborative Innovation Paradigm In the 1980s, enterprises adopted the “closed innovation” model, in which enterprises obtained basic technological breakthroughs by increasing internal R&D investment, thereby improving the quality and performance of products or services and obtaining more profits; After that, the company re-invested in more internal R&D projects, which led to a new round of technological breakthroughs and new product promotion, thus forming a virtuous circle. In the 1970s and 1980s, DuPont’s DuPont Laboratory, Lucent’s Bell Labs, IBM’s Watson Lab, HP’s Central Laboratory, and Xerox’s Palo Alto Research Center were the representatives of this innovation model. These large enterprises monopolized most of the innovation activities in their industry. The characteristic of closed innovation is that the company’s own R&D capabilities are strong and the risk investment is little. The external universities, research institutes and other scientific research institutions have no influence on the enterprise. With the rise of venture capital market, the transnational free flow of knowledge staffs and the change of market leading power, the closed laboratory innovation model of large labs is gradually unable to adapt to the ever-changing external environment, most enterprises’ innovation models have begun to move from closed innovation to open innovation. The open innovation model means that valuable ideas can be obtained both internally and externally from the organization, and the creative commercialization path can be carried out internally or externally [37]. The open innovation theory provides a new path for enterprises in developing country to shorten the gap between them in terms of knowledge stock and technical capabilities2 . The open innovation theory believes that the source of enterprise innovation is not only from themselves, but also from the external actors associated with them, and the boundaries of modern enterprises are becoming more and more blurred. Open innovation emphasizes that companies should break organizational boundaries, integrate internal and external innovation resources and commercialize valuable ideas. Enterprises can access innovation resources and useful knowledge by mining or working with external stakeholders [39]. However, enterprises can also be “driven” by external stakeholders to get external innovation resources [40]. The valuable ideas or knowledge of enterprises 2

Vanhaverbeke and Cloodt [38].

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can come not only from within, but also from external entities such as customers [41, 42], suppliers [43, 44], competitors [45], universities [46], government agencies and technology intermediaries [41, 42]. External innovation sources can enrich the knowledge base of an enterprise or provide complementary knowledge resources [47, 48]. The core concept of open innovation is that in the era of the spread of knowledge globalization, companies should not just rely on their own research power, but also should acquire or share innovation resources from external organizations. Internal inventions can be applied not only to the company’s own commercial development operations, but also to greater effectiveness through licensing and formation of joint ventures or subsidiaries. Meanwhile, the external commercialization of intellectual property based on open innovation has important economic value and far-reaching strategic value for enterprises to reduce the waste and loss caused by intellectual property idleness and knowledge spillover and improve knowledge income. In terms of organizational form, the previous centralized control model no longer adapts to the development of open innovation. Enterprises should pay more attention to integrating resources on a global scale and rapidly forming a corporate organization model that facilitates cross-border integration—cross-border organizations, strategic alliances, and innovation communities. Table 3.1 compares and summarizes the basic principles of the closed innovation paradigm and the open innovation paradigm. Table 3.1 Principles of the closed innovation paradigm and the open innovation paradigm Basic principles of closed innovation

Basic principles of open innovation

The best employees in the industry work for us

Not all capable people work for us, we need to work with all the talents inside and outside the company

In order to profit from research and development, we must invent, create and market our products

External R&D can create tremendous value, and to share some of it, internal research and development is required

If we do our own research, we can get the product to market first

We don’t have to study on our own to benefit from it

The company which first achieves innovation Building a better business model is much better commercialization becomes the winner than rushing to the market Basic principles of closed innovation

Basic principles of open innovation

If we have the best ideas in the industry, we win for sure

If we can make full use of the creativity inside and outside the company, we win for sure

We must control intellectual property so that We should make a profit by letting others use our competitors cannot profit from our ideas intellectual property, and we should buy other’s intellectual property as long as it enhances our business model Source Chesbrough [3], Chen and Zheng [49]

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3.2 The Connotation and Characteristics of the Innovation Ecosystem 3.2.1 The Connotation of the Innovation Ecosystem The concept of innovation ecosystem itself is a metaphor derived from natural ecosystems. Ecosystems often contain non-biological substances and energies as well as actors such as producers, consumers, and decomposers. The ecosystem concept was originally proposed by British ecologist A. G. Tansly. He believes that the ecosystem is a whole size and structure composed of biomes and their environment in a certain space and time. Within, each organism connects with each other, interacts with each other, and relies on each other through material circulation, energy flow, and information transmission to form a complex with adaptive, self-regulating and self-organizing functions. Since the 1970s, the idea of natural ecosystems has penetrated into the field of economic management. Burnie pointed out that ecologists and economists often study the same topics, such as resource availability, supply and demand, competition, and the cost of investing in certain profits; In nature, the cost is energy and resources, and in the human world, it is money. Based on this, along with the evolution of research, different scholars have analyzed the connotation of the innovation ecosystem from an ecological perspective and a network perspective. (1) Researches focus on the ecological perspective. In 1977, Hannan of Stanford University and Freeman of the University of California at Berkeley first proposed the enterprise population and organizational ecology, emphasizing combining enterprise populations with the external market environment where they depend for survival and development from the ecological perspective [50]. Iansiti and Levin proposed to use the niche concept in operational ecology to illustrate the structural characteristics of the innovation ecosystem. They believe that innovation ecosystems are made up of enterprises that occupy different but related niches. Once one of the niches changes, other niches will change accordingly [51]. Kim et al. more clearly point out that the innovation ecosystem is an economic community consists of many symbiotic enterprises. Within the system, member enterprises can cooperate to create value that individual enterprises cannot create independently [52]. Roijakkers et al. used case studies to study how the Inter-University Microelectronics Center (IMEC) in Belgium’s nanoelectronics industry guides the formation and development of innovation ecosystems. They studied the role of the coordinator of innovation ecosystems, pointing out that the management of intellectual property directly affects the value distribution of innovation eco-coordinators to other innovation ecomembers, the definition of new ecosystems, and the supply of key technologies to ecological partners, so IP management Critical to the success of an innovation ecosystem [53]. Domestic scholar Cao Ruzhong conducted a theoretical study on the evolution process of the innovation ecosystem in the innovation industry from the perspective of organizational ecology. He pointed out that

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the imitation mechanism, competition mechanism and knowledge transmission mechanism of the innovation ecosystem of creative industry are similar to the genetic, variation and selection mechanisms in the natural ecosystem, and show obvious phase characteristics and life cycle. The innovation ecosystem population of the creative industry has its own specific niche, and the evolution between populations follows a specific pattern. (2) Researches focus on the network perspective. Based on summarizing previous studies, Peltoniemi and Vuori define the business ecosystem as a dynamic structure composed of organizations with certain relationships. These organizations may be small businesses, large enterprises, universities, research centers, public institutions, and other organizations that may affect the system [54]. Den Hartigh and van Asseldonk theoretically define the innovation ecosystem based on the relationship between business and corporate networks. They believe that the innovation ecosystem should be a network of interdependent suppliers and customers that are built around a core technology [55]. Zahara and Nambisan take the innovation ecosystem as a network that provides resources, partners and important market information to enterprises. They believe that this kind of network is formed based on the long-term interaction between member enterprises within the network. Building and developing an innovation ecosystem requires entrepreneurship and strategic thinking to match each other [56]. Wang believes that the innovation ecosystem is composed of an innovation network and an innovation community in which individuals or organizations interact to innovate, as shown in Fig. 3.3. Innovation activities include two processes—the generation and application of innovation. The generation of innovation mainly includes basic research, applied research, product development, manufacturing and marketization; the application of innovation mainly includes understanding, adoption, implementation and assimilation. First, the organization collects and organizes ideas for innovation from the environment; second, the organization makes the decision of whether to innovate based on the information collected, while clearly expressing the basis for decision-making; Third, the implementation of innovations makes innovation dynamic, often accompanied by software and hardware installations, adjustments or changes in business processes, and user training; Finally, innovation is internalized into the organizational work system until the organization abandons innovation. Based on this, Wang built a theoretical model of the innovation ecosystem [57]. Figure 3.3 shows three different innovation networks A, B, and C and their associated communities. Innovation Community A is the center and consists of different members involved in two types of activities (innovation generation and application). Connected arrows indicate interactions between innovation members, and supply and demand relationships determine the balance between production and application. Members can participate in the production and application of innovation at the same time. For example, universities can not only carry out basic research and development of innovation, but also adopt innovation. The boundary is a dashed line indicating that members can move from one activity to

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Innovation Community C

Innovation Community A

Government investment

Supplier

Designer

Venture Capital

User Organization

The Production of Innovation Advertiser Basic Research Media Applied Research Product Development Production & Manufacturing Banker Marketization Regulator University

Innovation Community B

Demand

Research Laboratory

Market Researchers

The Application of Innovation Public Understanding Adoption Testing Internalization Abolishment Distributor University

Consulting Agency

Supply

Fig. 3.3 The connotation and formation of the innovation ecosystem. Source Wang [57]

another, from one innovation community to another, and in Fig. 3.3 is a doublearrow connection between different communities. As innovation resources flow into the innovation community, the production and operations of Innovation Community A depend on the supply and demand of innovation associated with it. As a metaphor for biological concepts, the first application of the ecosystem concept in the field of business management was seen in the 1993 Moore’s study. He believes that the organization’s business ecosystem is a systematic form in which stakeholders maintain a cooperative relationship. The enterprise builds an ecosystem through the whole process from nascent, expansion, leadership to reconstruction or decay [29]. Then, Moore further proposed that the organization’s business ecosystem is an economic complex based on the interaction between organizations and individuals (including core companies, consumers, market intermediaries, suppliers, stakeholders, competitors, etc.). This economic union produces products and services that are valuable to consumers [58, 59]. At the same time, Moore believes that the core characteristics of the enterprise ecosystem are “co-evolution” [29, 58]. The ecosystem creates value for members through joint innovation, and the competition and cooperation of members of the organization coexist and share the fate of the system [7]. Iansiti and Levien believe that the business ecosystem that targets innovation is divisive, interconnected and competitive. It consists of four core members of the network cores, niche market participants, dominators and beneficiaries. They also put forward the concept of healthy enterprise innovation ecosystem, which believes that a healthy enterprise

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innovation ecosystem is stable and sustainable, and it can maintain its own structure and resist external shocks [51]. Power and Jerjian believe that the enterprise ecosystem is a system with the characteristics of the enterprise network structure. It covers all aspects of the World Wide Web and real-world member interactions, and it is a whole of the physical community and its environmental factors. The members of the enterprise ecosystem should include community stakeholders, employees, businesses and customers [60]. Based on Moore’s definition of the business ecosystem, Gossain and Apaydin emphasized the importance of enterprises relying on the output of additional information, products and services to create value for customers. They believe that the core members of the enterprise ecosystem should only include the partners and suppliers of the enterprise [61]. Lewin and Regine believe that the innovation ecosystem encompasses a network of companies in which the company’s own strategic vision is interdependent with its competitors, partners, and complementors [62]. On the basis of summarizing the previous studies, Adner summarized the concept of innovation ecosystem from the enterprise level and considered that the innovation ecosystem is a collaborative mechanism. This collaborative mechanism connects individuals to others and provides customer-facing solutions for value output [26]. Innovation ecosystem members rely on the behavior of other actors to achieve positive feedback on innovation [21, 63]. Table 3.2 summarizes the implications of the innovation ecosystem. After a series of discussions, the core concepts of innovation ecosystem research have basically been established. It is derived from the metaphor of ecological concepts, and has three characteristics in its conceptual connotation: ➀ The conceptual nature of the innovation ecosystem includes the linkage and collaboration of heterogeneous stakeholders, emphasizing the coordination mechanisms formed by members and their interconnections to achieve value creation [26]. The concept proposes a transformation of the research paradigm—from focusing on the composition of the elements in the system to focusing on the dynamic processes between the elements and between the system and the environment [64]. ➁ The innovation ecosystem itself has some attributes, such as diversified symbiosis, self-organization evolution, platform, open collaboration [12, 29, 58, 65–67], innovation, member competition, intelligence [30], dynamics, habitat, growth etc. ➂ The health of the innovation ecosystem depends on the collaboration and sustainable development of the members in the organization, which can be reflected by productivity, robustness, niche market creativity [51], partner health, and network health [68]. The technological innovation activity is a complete chain. The “innovation chain” specifically includes incubators, public R&D platforms, venture capital institutions, industrial chains formed around innovation, property rights transactions, market intermediaries, legal services, and logistics platforms. A complete innovation ecosystem is based on collaborative innovation and co-evolution, including innovative talents, technological innovation policies, innovation industry chains and innovation culture. In terms of innovative talents, it is mainly to build an education and training system that is conducive to the development of innovative talents, and to cultivate the diversity of the members of the organization in terms of educational

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Table 3.2 Evolution and summary of the connotation of enterprise innovation ecosystem Main scholar

Year

Core connotation

Component

Moore

1993, 1996

Economic complex based on organizational and individual interactions

Core enterprises, consumers, suppliers, major producers, competitors, other risk takers

Gossai and Kandiah

1998

Economic consortium, relying on Center members should only additional information, product and include partners and suppliers service output to create value for of the organization customers

Power and Jerjian

2001

A kind of network system, the Community stakeholders, whole of a physical community and employees, businesses, and its environmental factors customers

Iansiti and Levien

2004

Have the attributes of divisiveness, interconnectivity, competitive cooperation, stability and sustainability

Network core, niche market participants, dominators, beneficiaries

Peltoniemi and Vuori

2004

Matching of intercompany networks and strategic visions

Competitors, partners, complements, such as small businesses, large enterprises, universities, research centers, public institutions

Adner

2006

A collaborative mechanism that Enterprises and their connects individual individuals with associated heterogeneous others and provides customer-facing stakeholders solutions to output value

Adner

2013

The collaborative mechanism associated with the behavioral actor, the member relies on the behavior of other actors to achieve positive feedback

Enterprises and their associated heterogeneous stakeholders

background and experience. The science and technology innovation policy aims to support the free flow of talent, technology and creativity within the innovation ecosystem. The governance of the innovation and innovation chain needs to focus on the various elements of innovation and the collaboration and interaction between different cooperation networks. In addition, a good innovation ecosystem needs to break through the innovation culture of convention, openness, trust, fairness, synergy, and interest transfer to promote the optimal function of each element [34].

3.2.2 The Characteristics of Innovation Ecosystem Studies have focused on the structure and characteristics of ecosystems. Moore first proposed the basic structure of the business ecosystem. He believes that the business ecosystem is dynamic structural system of group composition with a certain interest

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relationship with customers, suppliers, major producers, investors, trading partners, standards-setting bodies, trade unions, governments, social public service organizations and other stakeholders [29, 69]. The business ecosystem forms a core ecosystem based on direct suppliers, core products and services, complementary suppliers, and direct customers, extending to suppliers and customers of suppliers, while supporting the participation of maintenance organizations and industry players to achieve the coordinated evolution of the ecosystem and the macro environment [58]. Power and Jerjian systematically studied the basic attributes of the enterprise ecosystem, summarizing the successful enterprise ecosystem contains 12 basic criteria, namely learning, planning, system, network, security, paying attention, paying attention to purchase, paying attention to suppliers, paying attention to Innovation, focus on sales, customer focus, and personalization [60]. Iansiti and Levien divide companies in the business ecosystem into key (network core) companies, dominant (including dominant and benefited) companies, and niche companies. In their view, the key to the impact of the business ecosystem on the enterprise lies in the type of corporate strategy that the company chooses, and the strategy determines the positioning choices of the business in the business ecosystem [51]. On this basis, Iansiti and Levien further discussed the core features of the business ecosystem, including distribution, interaction, collaboration, and competitio. Mitleton-Kelly discussed the ten basic characteristics of the enterprise ecosystem as a complex evolutionary system, including self-organization, emergence, relevance, interdependence, feedback, away from equilibrium, spatial possibility, co-evolution, time dependence Sex and path dependence [70]. Peltoniemi summarizes the basic attributes of the corporate ecosystem as self-organize, emergence, co-evolution, and adaption [71]. Tian et al. constructed a research framework for enterprise ecosystems, arguing that enterprise ecosystems mainly include resources, activities, decisions, standards, roles, business entities and business models [72]. Garnsey and Leong integrate the resource-based view and evolution theory, and they believe that the enterprise ecosystem is an organizational system composed of member resource exchange and value creation. It forms an internal organizational interaction between the enterprise and the upstream and downstream subcontractors, suppliers and customers of the value chain. This interaction structure extends to the competitors, partners (such as research institutions, investment institutions) and supervision Institutions and labor markets, etc. [73]. Nambisan and Robert further summarized the structural characteristics of the enterprise ecosystem, including the hub-based ecosystem, the keys-tone ecosystem [51], the platform-based enterprise ecosystem [74], the orchestra model ecosystem [75, 76]. Domestic scholars further summarized the structure and characteristics of the innovation ecosystem, emphasizing that the innovation ecosystem has various types of division criteria such as common innovation elements, role interaction formulation, stability and uniqueness [77]. The research level includes micro level, middle level and macro level, and the research scope extends from “interdependence between actors” to “central-peripheral” structural framework of “interaction between actor and environment” [14]. The basic characteristics of the innovation ecosystem include diversity

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symbiosis, self-organization evolution, open collaboration [12]; openness, hierarchy, integrity, self-organization [78]; dynamic, habitat, growth [64]; self-organization, diversity, balance and symbiosis [79], etc. Based on the summarization and improvement of existing research, the research believes that the core of the innovation ecosystem lies in the three aspects of membership heterogeneity, symbiotic evolution, and individual goals and overall goals.3 (1) Feature attributes based on member heterogeneity: As an emerging concept, the enterprise innovation ecosystem seeks a third form of organization between the traditional market organization structure and the bureaucratic organization structure. It essentially extends the boundaries of traditional corporate organizations and forms the interrelationship of heterogeneous actors across organizational levels. From a narrow perspective, take the innovation ecosystem of developed countries’ focus enterprises as an example, professor Adner of Tuck School of Business and professor Kapoor of the Wharton School of the University of Pennsylvania discussed the innovation ecosystem of Airbus and upstream component suppliers, downstream complementary companies and customers, and the asymmetric effects of value creation; Professor Iansiti and Levien of Harvard University, focusing on Microsoft, draw up the Microsoft software ecosystem consisting of independent software vendors, development service providers, system integrators, top value-added resellers, campus resellers, small professional companies, extensive value-added resellers, and training organizations. This innovation ecosystem centered on large high-tech companies is more biased towards the value of the business ecosystem. Based on the strong internal R&D and technological innovation capabilities of high-tech companies, the ecosystem is coupled with the business through market demand traction, forming an ecosystem constructed by suppliers, service providers, distributors, complementary organizations, customers and other members. The market terminal outputs products and services and realizes profit feedback. The symbiosis and evolution of members are realized within the ecosystem by value distribution and sharing. However, the innovation ecosystem led by large enterprises presents more attributes of the commercial ecosystem. When there is an ecosystem structure risk in the face of changes in knowledge and technology, emerging industries and leading industries, external technology and innovation iterations, innovation needs to extend to the knowledge-side of diversity, and the business ecosystem needs to extend to the upstream knowledge ecosystem through a wider range of knowledge partners to realize the construction of a broad innovation ecosystem and the symbiotic evolution of heterogeneous members. For example, Silicon Valley is the most successful regional innovation ecosystem in the world, with the core of combining knowledge innovation system based 3

The following three sections of the characteristics of the enterprise innovation ecosystem are drawn from: Mei et al. [69], and the author’s latest article published in the Peking University Business Review.

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on knowledge resources and high-tech talent from Stanford University, University of California at Berkeley, and California Institute of Technology with the business ecosystem of companies such as Intel, Cisco, Lucent, and HP through flexible systems and culture. Supported by the financial support of financial service companies and venture capital companies, the self-organization and collaboration of the whole process of knowledge commercialization of the innovation ecosystem have been realized. Known as the IT industry, Bangalore of India is regarded as the fifth largest information technology center in the world. It is a business ecosystem with more than 5,000 high-tech companies and more than 100,000 IT employees. While the business ecosystem of the IT industry is booming, Bangalore is also known as the “science city” of India, consisting of the Indian Institute of Technology, the National Institute of Advanced Studies, the National Institute of Information Technology, the Indian Institute of Management and other high-level institutions, which effectively implement scientific research, personnel training, industrial innovation services and other functions, organically integrate knowledge with business, creating an overall prosperity under the symbiotic evolution of multi-heterogeneous members. In recent years, China has promoted cooperation between industry, academia and research, collaborative innovation, and capitalization of scientific and technological achievements from the aspects of research, policy, and industry. The fundamental point is under the condition that the R&D and innovation capabilities of enterprises are relatively weak, effectively opening up the linkage barriers between the knowledge resources of the university and the commercialization of the industry, coupling the knowledge elements and commercial value of the ecosystem, and finally realizing the prosperity of the heterogeneous members of the innovation ecosystem through the connection of policies and a wider range of heterogeneous actors at the industrial level. (2) Attributes based on symbiotic evolution: Innovation ecosystem is analogous concept of natural ecosystem. Moore believes that any business should “symbiotically evolve” with its ecosystem, not just compete or cooperate [58]. An innovation ecosystem is a system consists of businesses, consumers and markets, and the natural, social and economic environment in which they operate [67]. It includes a loose network of suppliers, distributors, outsourcing companies, product and service manufacturers, technology providers, and other organizations [30]. This loosely connected network creates symbiotic conditions for members of the innovation ecosystem, providing flexible relationship selection and system design conditions [66]. The symbiotic evolution has also become the last way to promote the effectiveness of ecological alliances [65]. A healthy innovation ecosystem transforms business strategy from simple joint operations to collaborative and systematic cooperation, from product competition to platform competition, and from enterprise independence to symbiotic evolution [66]. With the increase of member organizations in the innovation ecosystem and the improvement of environmental dynamics, the past traditional business philosophy of only emphasizing survival and the development rights and

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ignoring the overall interests of the stakeholder groups and the symbiotic development and prosperity of the ecosystem has lagged behind. Enterprises no longer regard themselves as a single closed organization, but consciously form a whole with the relevant organizations, closely link their own destiny with the entire ecosystem, and strive to achieve symbiotic evolution [67]. Taking large foreign companies as examples, companies such as Apple, IBM, Ford, and Wal-Mart have established their own services, tools, technologies, and value network platforms to enable other organizations in the ecosystem to participate and gain value [29], while strengthening the overall innovation and productivity of the ecosystem [80]. Along with the symbiotic evolution of members, the innovation ecosystem has evolved into a multi-organizational community that provides complementary asset appreciation and compliance with multiple core products, ultimately creating a value that a single enterprise cannot create [26]. (3) Attributes based on the individual and the overall goal: Innovation is a process and a method. The fundamental goal of enterprise innovation is to create value for customers, match value creation with customer value proposition, achieve return on income, and gain sustainable competitive advantage. From this perspective, the essence of the construction goal of the enterprise innovation ecosystem is to realize the value acquisition and the overall value spillover of the heterogeneous individual organization, thus laying a foundation for the promotion of the competitive advantage of the single enterprise of the innovation ecosystem and the overall prosperity of the system. Starting from the basic components of the innovation ecosystem, Table 3.3 summarizes the basic content of the value acquisition and value output of each behavioral actor in the innovation ecosystem. In the innovation ecosystem, the symbiotic evolution of heterogeneous behavioral actors related to the focus enterprise can generate value spillovers in the overall level of the innovation ecosystem, achieving the synergy effect of “1 + 1 + 1 > 3”, and allow members of the system to share the ecosystem dividends brought about by the overall value spillover. This collaboration is mainly reflected in knowledge spillover, information sharing, personnel mobility, resource integration, cultural creation, ecological health, and social effects.

3.3 Knowledge Structure and Clustering of Innovation Ecosystem Research 3.3.1 Interpretation and Description of Research Methods [69] The theoretical study of the innovation ecosystem is carried out using the method of scientific metrology. This is because the use of mathematical methods to quantitatively study all aspects and the whole of the innovation ecosystem helps to reveal

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Table 3.3 Description on value acquisition and output of the relevant actors in the innovation ecosystem Main behavioral actor

Value acquisition

Value output

Focus enterprise

Sales revenue, profit, capacity improvement, resource accumulation, brand value, market share, etc

High quality products and services Stable employment

Supplier

Economic value, good cooperation with focus companies, stable supply chain operation

High quality raw materials, etc

Customer

High quality products and services, satisfaction and experience of new demands

Fees payed, provide feedback on product design, functional improvements, service experience, etc

University

Social reputation, financial support, knowledge and context in industrial application environment

Knowledge and technology involved in talent, basic research and applied research, humanistic thinking and management methods, social and industrial service functions

Research institute

Social reputation, funding Basic research and applied support, application and research results, technological commercialization knowledge innovation, industry reports, solutions, etc

Government

Economic growth, social stability, employment and livelihood security

Intermediary organizations (financial, legal, technological service organizations, etc.)

Member body information and Professional services, intermediary information, information, channel customer resources, revenue relationships return

Rulemaking, policy improvement, system maintenance, social universal value guidance

its development law [81]. Specifically, this section of the study mainly uses the method of co-citation analysis. Based on co-citation analysis, research begins to focus on the application of visualization techniques, which can portray the structure and knowledge dynamics of the innovation ecosystem [82]. The visualization technology and method can draw the subject knowledge map, and comprehensively and dynamically interpret the development trend, research progress, hotspot frontier, subject knowledge structure and dynamic evolution relationship of the innovation ecosystem research [83]. Based on the co-citation analysis, the Citespace analysis software is used to conduct a visual analysis of the innovation ecosystem theory research, and the knowledge base, theoretical progress and research trends of the innovation ecosystem

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research are discussed. Developed by Professor Chen Chaomei from Drexel University, USA, Citespace software is used to analyze and visualize the development trends and evolution of scientific literature and theory [82]. Citespace’s main functions include co-occurrence analysis of authors, institutions, countries, terminology and keywords, citation analysis, co-citation analysis of authors and journals, literature coupling analysis, bursting words or outbreak document detection [83]. The data used in the study was derived from the Web of Science database created by the American Institute of Scientific Information, the most important and academically important source of citation information in the world [84]. Around the research topic of the innovation ecosystem, the English literature in the database was searched, and a total of 1236 research papers were obtained. According to Citespace requirements, all the literature and its references are exported as the data pool for this section.

3.3.2 Knowledge Structure of Innovative Ecosystem Research4 According to the abstracts, keywords, reference citations of all relevant literatures, and based on the spanning tree in Citespace, the knowledge structure tree composed of the co-citation network of the innovation ecosystem literature is obtained, as shown in Fig. 3.4. 1. Knowledge backbone for innovative ecosystem research The knowledge backbone of innovative ecosystem research forms two major research directions: the direction begins with Utterback and Abernathy’s 1975 dynamic change research on product innovation and process innovation in the US automotive industry technology innovation. It divides product innovation, process innovation, and evolution of industrial organization into different stages based on the product life cycle [20]. Afterwards, Henderson used optical imaging technology as an example to analyze the important role of customer requirements, component technology and complementary technology in the evolution of the technology life cycle [86]. Tripsas uses the typesetter industry as an example. In the process of technological change, the performance advantage of industry incumbents and new entrants comes from investment, technical capabilities and appropriability based on industry-specific complementary assets [87]. Adner proposes the concept of an innovation ecosystem and believes that the innovation ecosystem is a synergistic mechanism through which organizations connect individuals with other organizations and provide customeroriented solutions for value output [26]. An innovation ecosystem can create value that a single company cannot create. As it develops, it needs to match its innovation strategy with its innovation ecosystem and effectively assess the risks of the ecological strategy [26]. Moore proposes the concept of a business ecosystem that believes that innovative businesses cannot evolve in a vacuum and must attract resources, 4

Mei, Huang and Chen [85]

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backbone

Fig. 3.4 Innovation ecosystem research knowledge structure tree

absorb capital, partners, suppliers, customers, etc. to create a network of organizational cooperation [29]. Successful companies are those that can respond quickly and adapt to the business ecosystem. A rapidly changing environment requires companies to reduce transaction costs and maintain their competitive position through mutual learning and cooperation [88]. The commercial ecosystem, like the biological ecosystem, evolved from a random selection of factors to a structured community. Since Utterback and Abernathy put forward the U-A model of industrial innovation, the research has been around technology change and technology cycle, until the concept of commercial ecosystem and innovative ecosystem is proposed. Moore published an article in the Harvard Business Review in 1993. “Predators and prey: a new ecology of competition” laid the foundation for commercial ecosystem research and became the backbone of the innovation ecosystem research knowledge tree. The article quoted in Fig. 3.4 also reflects the important value of the research.5 5

The citation circle formed by this paper is the largest, indicating that the citation is the most; the outer ring of the ring is a darker gray, reflecting the sudden increase of citations in the article.

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The research direction of the knowledge backbone of innovative ecosystem research began with the Competitive Strategy published by Porter in 1980. He believes that the key to a company’s competitive advantage lies in its own industry positioning and degree of differentiation. The combined effect of supplier bargaining power, buyer bargaining power, threats to new entrants, threats to alternatives, and competition among competitors in the industry will determine the ability of firms to gain profits and competitive advantage in the industry [89]. Based on Porter’s competitive advantage analysis, Wernerfelt puts forward the resource-based view, discusses the reasons for the heterogeneity of the company and how the company obtains the sustainable competitive advantage. It believes that the enterprise can be regarded as a collection of resources, including all tangible and intangible assets related to the enterprise [90]. Barney further developed the resource-based view, and considered that measuring the competitive advantage of the organization from the perspective of resources includes four dimensions—the value of resources, the scarcity of resources, the imitation of resources, and the substitutability of resources [91], and established the theoretical basis of the resource-based view. Brandenburger and Nalebuff propose the concept of “co-opetition” to further discuss how a company can compete and collaborate with stakeholders such as customers, competitors, suppliers, and complementary asset institutions in commercial games, thereby effectively defining organizational boundaries, improving efficiency, and generating revenue [92]. Therefore, the backbone of the innovation ecosystem research knowledge structure involves two major directions: the research branch extending from the perspective of industrial innovation and technological change, then generate concepts and research on innovative ecosystems and commercial ecosystems. Research on organizational competition and cooperation extended from the perspective of enterprise competitive advantage analysis and enterprise resource base view. With the further extension of the two main trunks, the relevant branches of the innovation ecosystem research knowledge tree have gradually formed. 2. The main branch of innovative ecosystem research (1) Research on innovative ecosystem based on dynamic capability theory: The first branch of the innovation ecosystem research knowledge tree is the dynamic capability theory, which extends from the resource-based view. As shown in Area A of Fig. 3.4, it includes the discussion of dynamic capability connotation [65], dynamic capability and organizational strategy [93] and dynamic capability research [94], as well as the application of capacity theory [95] to analyze the rapid development and success of Apple mobile phones.6 Teece et al. believe that dynamic capabilities are the source and means for companies to gain innovative value in a rapidly changing environment. The competitive advantage of an enterprise is reflected in the unique resource coordination and integration process, the location of special assets, and the adaptation and development of 6

The literature selection of the main research relies on the annual average citation rate of the article, which is reflected by the larger circle and the darker peripheral literature in Fig. 3.4.

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the company to its own evolutionary path. The key to creating value for an enterprise is to design a mechanism for coordinating internal technologies, organizations, and management processes in response to a rapidly changing technology environment➁ . Eisenhardt believes that from the perspective of resource-based, the organization’s resources form the basis of the organization’s value creation strategy and its organization’s activities with customers in specific markets, thus gaining competitive advantage. Dynamic capabilities are a prerequisite for organizational paths and strategic paths, involving managers acquiring and hiding organizational resources, integrating resources, and reorganizing resources to create value [65, 96, 97]. Wang and Ahmed believe that dynamic capabilities are a behavioral orientation of enterprises, involving the integration, reconstruction, renovation and reshaping of their own resources and capabilities. Most importantly, dynamic capabilities are the ability to refine and restructure resources and capabilities in a changing environment to achieve a sustainable competitive advantage. Dynamic theory is the development of the resource-based view. Based on the static perspective of organizational resources to determine competitive advantage, it emphasizes the integration and reconstruction of resources and capabilities, and the adaptive behavior of organizational capabilities to market changes, thus winning a sustainable competitive advantage. (2) Inter-organizational perspective on competition and cooperation: The second branch of the innovative ecosystem research knowledge tree is the perspective of inter-organizational competition and cooperation. As shown in Area B of Fig. 3.4, it includes the competitive advantages of cross-organizational boundaries and inter-organizational relationships [98], the competitive strategy and leadership of the business ecosystem [58], the competitive strategies of emerging markets [99], and the evolutionary theories of economics and society [100]. This research branch focuses on core keywords such as evolution, competition and cooperation, and cross-organizational boundaries. From the perspective of the relationship between organizations, Dyer and Singh explored the strategy of cross-organizational cooperation and the key to organizational competitive advantage. The core resources that determine the competitive advantage of an organization are across the boundaries of the organization and embedded in the resources and paths between the organizations. These four potential inter-organizational competitive advantages are reflected in the assets of the organization-specific relationship, the way of knowledge sharing between organizations, the complementary resources and capabilities of organizations, and the effective governance mechanism of cooperation between organizations. In his monograph “the Decline of Competition”, Moore directly discussed the connotation, characteristics, and competitive strategies of the business ecosystem. He believed that the business ecosystem is an economic complex based on the interaction between organizations and

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individuals. This economic complex produces products and services that are valuable to consumers, including suppliers, major producers, competitors and other stakeholders. Moore believes that the core of the business ecosystem is “co-evolution,” not just competition or cooperation. Co-evolution in an ecosystem refers to the interaction, self-regulation, and co-evolution of interdependent subsystems through the synergy between members or subsystems of the system, and finally leads to a new ordered structure, that is, the result of the common evolution of members of the ecosystem [67]7 . London and Hart focus on the inter-organizational competition and cooperation strategies in emerging markets. They believe that the competition of multinational companies in emerging markets needs to consider the social embeddedness of the market. The competition strategy should include the relationship building of non-traditional partners, the formulation of customer participation solutions, and the construction of localization capabilities in emerging markets. Therefore, the research under this research branch focuses on the strategic measures of inter-organizational competition and cooperation to guide the acquisition of competitive advantage. The innovation ecosystem needs to form the research and thinking across organizational boundaries. (3) A strategic perspective for an innovative ecosystem: The third branch of the innovative ecosystem research knowledge tree is the strategic perspective. As shown in Area C of Fig. 3.4, including the business ecosystem and its organization [23], the embeddedness of economic activities [101] and social structures, the technology, strategy and organization of modern manufacturing [102], the main impact of the corporate ecosystem on corporate strategy, innovation and sustainability [51]; information strategy in the era of network economy [103], and platform strategy for ecosystems [74]. This research branch originated from the research literature on commercial ecosystems published by Moore in the Harvard Business Review in 1993. Moore sees the business ecosystem as a third form of organization outside the market and bureaucracy in its further exploration of the business ecosystem. He believes that the business ecosystem is a community of global economic actors whose individual destiny is related to the overall destiny [23]. It is well-designed and co-evolved, creating value for members through co-innovation [7]. The embeddedness of economic activities and social structure believes that the economic behavior of individuals and enterprises is not completely rational and interest-oriented, and it is influenced by social context factors such as rules and systems [101]. As a result, the study has led to consideration of social contextual factors in the development of the business ecosystem strategy. Milgrom and Roberts put research in the specific industry context of manufacturing, arguing that the manufacturing innovation model has shifted from mass production to flexible manufacturing with cross-organizational boundaries and multi-organizational cooperation. Modern manufacturing strategies need to consider conditions such as property conditions, product market strategies, business and supplier relationships, and analyze 7

Hu and Li [67]

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conditions such as production and purchase, vertical integration strategies, and organizational structure [102]. Levien and Iansiti focus on the business ecosystem strategy and its impact on organizational innovation and sustainability, and they believe that members of the business ecosystem can adopt different strategic choices based on their role. Network core strategy—actively improving the overall health of the ecosystem, and benefiting from this, enabling the company to achieve sustainable performance. Dominating strategy—vertical or horizontal integration to occupy and control most of the nodes of the network; strategy of taking advantage of others’ profit—extract as much value as possible from the network, but not directly control the network; the gap-type strategy— having the expertise to differentiate itself from the rest of the network. From the perspective of information, Shapiro and Varian believe that in the context of the information economy-led era, the essence of the relationship between enterprises and their external organizations lies in the flow of information. In the process of organizing ecological information flow, enterprises need effective valuation information and translation information, objectively recognize the lock-in effect of information management, and rely on the network to achieve information cooperation and compatibility. At the same time, they also discussed the organizational support and informatization policy support in the context of information application [103]. Gawer and Cusumano propose a platform strategy for the enterprise ecosystem, which is based on services, tools, and technologies that create performance and value for ecosystem members [6]. The concept of the platform involves different items (product lines), software engineering (software systems), economic factors (products and services of customers in both markets), information systems and industrial organizations [104]. It is composed of multiple modules, sharing functions, and realizing interaction and information circulation between ecosystem modules. Therefore, under this research branch, the concept and characteristics of the innovation ecosystem have been improved on the basis of Moore’s research results in 1993, and the innovation ecosystem has become the core focus of the cooperation organization strategy. Relevant research focuses on the important role of platforms, information and other strategies, and pays attention to the matching relationship between the role of ecosystem members and strategic choices, as well as the consideration of environmental embeddedness in strategy formulation. (4) Innovative ecosystem research methods: The fourth branch of the innovative ecosystem research knowledge tree. As shown in the D area in Fig. 3.4, the core research is based on Eisenhardt’s case study, Building Theories from Case Study Research [105], Yin’s case study, Case Study Research: Design and Methods [106], and the case study of the open innovation process of the Linux as the core research output [107]. The core of this research branch involves systematic description and discussion of case study design, methods, and theoretical construction. The case study method is to investigate the nature of the phenomenon in a comprehensive and in-depth manner by collecting data and data to study the characteristics of the phenomenon under certain circumstances.

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It is suitable for use in new social research fields and in the research context of constructing new theoretical frameworks. Case studies are the mainstream research method in innovative ecosystem research, related research on the open innovation process system of Linux open source software systems, Wal-Mart’s organizational ecological evolution life cycle [29], the diversity and characteristics of Microsoft’s business ecosystem members [51], the technology path of the Cisco ecosystem [6], the value creation of the Airbus innovation ecosystem [5]. Deutsche Telekom’s open innovation ecosystem and other major companies have discussed the innovation ecosystem and its structure and characteristics of various types of industries [108]. The research results reflect the diversity and heterogeneity of the innovation ecosystem. Table 3.4 summarizes and illustrates the backbone and branches of the knowledge tree of innovation ecosystem research.

3.3.3 Research Clustering of Innovative Ecosystems [69] A research hotspot is a study or topic that is discussed in a relatively large number of papers that are intrinsically linked within a certain period of time [69]. According to the analysis rules in this section, the data pool consisting of relevant English articles and their references with the theme of innovation ecosystem has selected 18,280 valid references and 5 invalid references to form an integrated innovation ecosystem. The knowledge network consists of 256 nodes and 1,059 associated paths. The clustering characteristics of the knowledge map are shown in Fig. 3.5. In Fig. 3.5, each circle is composed of rings of different gray levels, and the ring represents the cited case of the document in that year. The larger the ring, the higher the frequency of the cited article; The darker the color of the ring, the more the citation rate of the document in a certain year, that is, the topic has become a research hotspot. Based on the knowledge evolution clustering characteristics of the innovation ecosystem research, the main clusters of ecosystem research in the economic and management fields for more than 30 years (described by the clustering characteristics of high-frequency subject terms) include the business ecosystem, value creation, open innovation, innovation ecosystems, conceptual framework, climate change, greenhouse gas, theoretical framework, sustainable development and ecosystem service. The six key words of the conceptual framework, climate change, greenhouse gases, theoretical framework, sustainable development, and ecological services with few literature bases and weak links are removed. The research hotspots for further research on available ecosystems include the following four key clusters that are highly aggregated from each other—business ecosystems, value creation, open innovation, and innovation ecosystems. The clustering of business ecosystems is based on the research of Moore and Iansiti, and it is the earliest extension of the concept of biological ecosystems to the field of organizational management. The research object is transformed from an independent and autonomous enterprise entity to a

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Table 3.4 Summary of knowledge structure of innovation ecosystem research Knowledge structure

Research description

Knowledge focus

Core researcher

Years

Backbone

The innovation ecosystem is the economic union between organizations. It realizes value creation and innovation through the synergy of organizational elements such as technology. Technological change and industrial evolution have an important impact on ecosystem innovation

Industrial innovation, technological change and life cycle, innovation ecosystem, business ecosystem concept

Utterback and Abernathy

1975

Henderson

1995

Tripsas

1997

Adner

2006

Moore et al

1993

The competitive advantage of members of the innovation ecosystem depends on their heterogeneous resources and the complementary resources of system members to achieve resource integration across organizational boundaries

Competitive advantage, resource base view, cooperative competition, organizational boundaries

Porter

1980

Wernerfelt

1984

Barney

1991

Brandenburger and Nalebuff

1996

The sustainable competitive advantage of the members of the innovation ecosystem requires the cultivation and improvement of the internal dynamic capabilities of the members on the basis of static resources, as well as the adaptation of internal capabilities and environment

Dynamic capability theory

Eisenhardt and Martin

2000

Teece et al

1997

Wang and Ahmed

2007

The core feature of the innovation ecosystem is that the organization and stakeholders are co-evolving in the process of competition and cooperation

Inter-organizational competition and cooperation perspective, evolutionary economics

Dyer and Singh

2000

Moore

1996

Branch

London and Hart 2004 Nelson et al

1982

(continued)

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Table 3.4 (continued) Knowledge structure

Research description

Knowledge focus

Core researcher

Years

Innovative ecosystem research pays attention to the organizational strategy level, and considers the logic of member symbiosis evolution, innovation, diversity, information application, platform advantage, and win–win in organizational strategic thinking and design

Innovative ecosystem strategic perspective, platform strategy, information strategy, organizational embeddedness

Granovetter

1985

Milgrom and Roberts

1990

Moore

2006

Levien and Iansiti

2004

Gawer and Cusumano

2002

Shapiro and Varian et al

1998

Eisenhardt

1989

Yin

2003

Henkel

2006

The mainstream approach Case study design, to innovative ecosystem method and theoretical research is the case. The construction ecosystem case involves technology, services, products, organizational members, business processes, etc

Fig. 3.5 Clustering characteristics of innovation ecosystem research. Source Mei et al. [69]

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103

symbiotic and interdependent relationship between the enterprise and the stakeholders. In the future, enterprise competition will be transformed from a technical competition between individual enterprises to competition between ecosystems or competition between internal business domains of the system. The theme of competition will also be the overall health of the ecosystem in which each company fosters and depends [88].8 Based on the concept of business ecosystem and its strategic discussion, scholars with Adner as the core focus on the clustering of innovation ecosystems. They believe that the innovation ecosystem is the connection between enterprises and individuals or other actors, providing customer-oriented solutions and realizing the synergy mechanism of value output. The innovation ecosystem realizes the common value creation that cannot be realized by a single organization. Its advantages are manifested in platform leadership, strategic dominance, open innovation, value network and hyperlink organization [26]. Compared to the two clusters of business ecosystem and innovation ecosystem, open innovation clustering is based on Chesbrough’s research, focusing on the R&D level, focusing on the integration of ecosystem partners’ creativity and knowledge in the R&D process [109]. This leads to the blurring and penetration of organizational boundaries to promote the technological innovation process. The value creation cluster cuts in from the goal and performance of the innovation ecosystem operation and believes that the ability of the enterprise to create value depends on the organization that produces complementary products or services in the ecosystem [24, 25, 110]. The ways in which innovative ecosystems achieve value creation include providing convenient services for single-enterprise innovation and creating value spillovers for innovative communities [111].

3.4 Research Frontiers and Theoretical Frameworks of Innovative Ecosystem Research [69] 3.4.1 Innovative Ecosystem Research Frontier More and more literatures focus on the innovation ecosystem and promotes the continuous evolution of innovation ecosystem research. Price observes that scientists seem to cite the latest published articles, proposing the concept of “research frontiers” to describe the dynamic nature of the research field [112]. Zeyuan et al. defined the research frontier as the development status of a research field (such as research ideas), and the research frontiers formed the corresponding knowledge base [113]. Chen Chaomei believes that the research frontier is a dynamic concept and potential research problem for a group of emergent (The sudden measurement is the rate of change of the cited frequency of the document or the number of occurrences of the keyword). As the frontier of innovative ecosystem research, the four main 8

Iansiti and Levien [51]; Chen [88]

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themes of business ecosystem, value creation, open innovation, and innovation ecosystem constitute the theoretical core of research, and also form the theoretical agglomeration in Fig. 3.5. The large circle of literature in the cluster formed the knowledge node of the innovation ecosystem research, and the literature in the deep gray circle formed the research theme as shown in Fig. 3.6. Table 3.5 summarizes and integrates the representative results of the innovation ecosystem research. Figure 3.6 and Table 3.5 show: First, there are 21 papers with the highest citation rate in the literature on innovation ecosystem theory research (shown in the literature circle). The time span is from 1980 (Porter’s “Competitive Strategy”) to 2006 (Adner’s research on the matching of corporate strategy and innovation ecosystem). Secondly, the source of the most cited literature journals shows that the literature on innovation ecosystem research mainly comes from the field of organizational management.9 Thirdly, the research results of Nelson, Moore, Levien, Iansiti and Adner have the largest circle radius of the cited circle, forming the literature basis with the highest citation rate of innovative ecosystem theory research; Finally, the research results of Nelson, Granovetter, Barney, Miles, Moore, Chesbrough, etc. are darker in the outer ring of the circle, reflecting the fact that these studies have abrupt changes in the evolution of the innovative ecosystem theory, and research contributions have grown significantly at some stage of the evolution of the theoretical frontier.

3.4.2 Theoretical Framework for Innovative Ecosystem Research Based on the above analysis, the study constructed the overall theoretical framework for innovative ecosystem research, as shown in Fig. 3.7. The theoretical framework of innovative ecosystem research mainly includes two parts: theoretical basis and research method. Among them, the theoretical basis of innovation ecosystem research includes three major theories: new institutional economics theory, strategic management theory and innovation management theory. The research methods are mainly case studies. 1. The theoretical basis of innovative ecosystem research The innovation ecosystem is a new concept in theoretical research, and the concept itself comes from the analogy in biology [66]. Existing research has been analyzed from different theoretical perspectives. The theoretical basis mainly includes three major theories: new institutional economics theory, strategic management theory and innovation management theory. The innovation ecosystem research based on the perspective of new institutional economics emphasizes the co-playing relationship based on bounded rationality. On the one hand, evolutionary economics theory focuses on and explains the constant 9

In addition to books, the literature sources mainly include SMJ, ASQ, AMJ, SMJ, AMR, RP, HBR and other journals, all of which are core publications in the field of organizational management.

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105

Fig. 3.6 Research frontiers of innovative ecosystems. Source Mei et al. [69]

motion and random variation of things with time [114, 115]. Many studies focus on the evolution of factors and processes in ecosystems, such as research of Cooke et al. [116] Malerba [117], and Martin and Sunley [118]. On the other hand, the economic activity embeddedness theory holds that it is unreasonable that economic behaviors that are completely rational and personal interests are not affected by social relations. Behaviors and institutions are always suppressed and controlled by the working social relationships, and the social factors of individuals and organizations in economic behavior need to be considered [101]. It combines the discussion of individual and organizational business behavior in the innovation ecosystem with the influencing factors of social context. The research on innovation ecosystem based on strategic management theory emphasizes the impact of industry and resources on the competitive advantage of enterprises in the innovation ecosystem. First of all, the theory of industrial competitive advantage comes from the research results of Porter. The research focuses on how to obtain competitive advantage from the perspective of industrial organization and industrial structure, and the key to determining the competitive advantage of the enterprise lies in its own industrial positioning and degree of differentiation [89, 119]. As the basis of innovation ecosystem research, the strategy of cost leadership, differentiation and concentration emphasized by the competitive advantage of enterprises will be an important reference for enterprises in the innovation ecosystem to

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Table 3.5 Main research results of the innovation ecosystem Serial number

Years

Authors

Cited Center times per degree year

Literature name

Source of literature

1

1980

Michael E. Porter

10

0.8

Competitive strategies

Books

2

1982

Nelson

13

0.05

Evolutionary theory Books

3

1985

Michael E. Porter

8

0

Competitive advantage: creating and sustaining superior performance

4

1985

Mark Granovetter

6

0.17

Economic action American and social structure: Journal of The problem of Sociology embeddedness

5

1986

DJ Teece

9

0.11

Profiting from Research policy technological innovation: Implications for integration, collaboration, licensing and public policy

6

1989

Eisenhardt

13

0.29

Building theories from case study research

7

1990

Henderson and Clark

9

0.04

Architectural Administrative innovation: the Science reconfiguration of Quarterly existing product technologies and the failure of established firms

8

1991

J Barney

11

0.81

Firm resources and sustained competitive advantage

Journal of management

9

1993

JF Moore

17

0.87

Predators and prey: a new ecology of competition

Harvard business review

10

1994

Matthew B. Miles

8

0.07

Qualitative data analysis: An expanded sourcebook

Books

Books

Academy of Management Review

(continued)

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Table 3.5 (continued) Serial number

Years

Authors

Cited Center times per degree year

Literature name

Source of literature

11

1996

JF Moore

10

0.22

The death of competition: Leadership and strategy in the age of business ecosystems

Books

12

1997

Teece, Pisano, Shuen

12

0.48

Dynamic capabilities and strategic management

Strategic Management Journal

13

1998

Dyer and Singh

9

0.42

The relational view: The Academy cooperative strategy of Management and sources of Review interorganizational competitive advantage

14

2000

Eisenhardt, Martin

12

0.49

Dynamic capabilities: what are they?

Strategic Management Journal

15

2002

A Gawer, Cusumano

13

0.2

Platform leadership

Books

16

2003

HW Chesbrough

9

0.04

Open innovation: Books The new imperative for creating and profiting from technology

17

2003

RK Yin

8

0.43

Case study research: Books Design and methods

18

2004

R Levien, M Iansiti

13

0.26

The keystone Books advantage: what the new dynamics of business ecosystems mean for strategy, innovation, and sustainability

19

2004

M Iansiti, R Levien

10

0.02

Strategy as ecology

Harvard business review

20

2006

Henry Chesbrough

8

0

Open business models

Books

21

2006

R Adner

15

0.89

Match your innovation strategy to your innovation ecosystem

Harvard Business Review

108

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Fig. 3.7 Theoretical framework for innovative ecosystem research. Source Mei et al. [69]

gain competitive advantage in the process of interaction with external organizations. Secondly, the resource-based view studies the impact of resource heterogeneity on the competitive advantage of enterprises, while measuring the special resources to enhance competitive advantage [90, 120, 121]. Barney further describes the characteristics of the core resources of competitive advantage of corporate activities— including the four dimensions of value, scarcity, imitation and sustainability [91], and emphasizes the matching of organizational resources with the environment. The elements of the innovation ecosystem are themselves in the category of enterprise resources. The competitive advantage of the ecosystem is reflected in the attributes of resources and the symbiotic relationship between ecosystems and the environment. Third, dynamic capability theory believes that the acquisition of sustainable competitive advantage not only requires organizations to have resources that are difficult to replicate, but also requires organizations to have dynamic capabilities that are difficult to imitate [65, 93]. Dynamic capabilities drive business enterprises to create, deploy, and protect intangible assets to support continued business performance. It is not only suitable for the innovation ecosystem, but also to shape the innovation ecosystem through collaboration and innovation between the business and the enterprise, and between the enterprise and other organizational entities [25]. Finally, the relationship perspective is an extension of enterprise resource research, which believes that enterprise resources extend the organizational boundaries and are embedded in the resources and symbiotic paths between organizations. There are

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109

four potential organizational competitive advantage resources in the perspective of the organizational relationship of the innovation ecosystem—the special relationship assets of the ecosystem members, the knowledge sharing path, the complementary resources and capabilities, and the efficient management of the ecosystem [98]. The research on innovation ecosystem based on the perspective of innovation management theory emphasizes breaking the boundary and achieving the complementarity of functions across organizations. On the one hand, research based on open innovation theory focuses on the connection and application of creativity and knowledge in the internal R&D process [109, 122], emphasizing the boundary penetration and fuzzification of the organization in the process of innovation investment, innovation generation and innovation commercialization, focusing on R&D is not a business strategy. As an exploration of the theoretical perspective, when the target of innovation ecosystem analysis is R&D-intensive enterprises, a specific research and development-intensive enterprise-led innovation ecosystem has become a typical case of open innovation [66]. On the other hand, the research concept based on platform theory involves different items (product lines), software engineering (software systems), economic factors (products and services of customers in both markets), information systems and industrial organizations [104]. The platform is composed of multiple modules, each of which performs function sharing, interaction and information circulation. Platform theory believes that the innovation ecosystem is built on platforms where services, tools, and technologies can create performance and value for ecosystem members [29]. The focus enterprise is the center of the platform, providing the core functions of the platform. The other members of the ecosystem enrich and improve the functions of the platform to form independent and interdependent modules. The ecosystem system forms a relatively stable platform and a set of modules that support each other and complement each other through a reasonable division mechanism, thereby changing the overall design rules of the system and forming an architectural innovation at the ecosystem level [123]. 2. The core method of innovative ecosystem theory research: case study According to the analysis of Citespace software on the core literature of the innovation ecosystem and its co-citation relationship, there are three research methods involved in the highly cited article. They are Eisenhardt’s 1989 article “Building theories from case study research [105]”, Matthew’s 1994 book Qualitative Data Analysis: An Expanded Sourcebook [124] and Yin 2003 published by Case Study Research: Design and Methods [125]. All three references refer to the introduction of case study methods. Case studies are an important research method in the field of social science research. Compared with other research methods such as experiments and questionnaires, case studies are more conducive to getting rid of the constraints of existing literature and past experience and more suitable for new social research fields and building new theoretical frameworks [105]. Yin pointed out that the case study method collects data to study the phenomena in a certain situation, so as to comprehensively and deeply investigate the nature of the phenomenon [125]. Case study has become the dominant method of innovation ecosystem research under the condition that the theoretical construct of the innovation ecosystem is still in the state

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of research. Moore reviewed the history of the innovation ecosystem and described the evolutionary history of the innovation ecosystem in a case-by-case analysis of each phase, involving a total of eight phases. Includes: ➀ IBM’s modular technology and HP’s flexible organization; ➁ Apple’s ecosystem vision and development practices; ➂ Sun and AT&T promote open source systems to counter the breakthrough of commercial monopoly; ➃ Compaq and IBM attempt to block Intel’s innovative development through senior members of the ecosystem; ➄I BM and HP create a common purpose ecological volunteer community; ➅ development of Web2.0; ➆ US companies use the judicial system to improve the norms of the innovation ecosystem; ➇ The organization of the ecosystem is widely implemented [23]. Rohrbeck digs deep into the case of Deutsche Telekom’s open innovation ecosystem, arguing that the key to Deutsche Telekom’s successful innovation is to open up traditional processes and apply a large number of external creative and knowledge resources of the ecosystem [108]. Li analyzed the typical case of the Cisco Innovation Ecosystem and argued that the key to Cisco’s value creation and competitive advantage is the platform building of the innovation ecosystem [66]. Adner analyzed the role of Airbus in the United States in leveraging the interdependence of technology and organizational structure among members of the innovation ecosystem to advance technological innovation and value creation [5]. The research approach to the innovation ecosystem requires an accurate analysis of the innovations of “focus companies” and the need to discuss innovations from external partners. Thus, the mainstream approach to innovative ecosystem research is case-based, and case studies can describe different types of innovation ecosystems and provide insight into the complexities of innovation ecosystem research.

3.5 Evolution and Synergy Mechanism of Innovative Ecosystem 3.5.1 Evolution of the Innovation Ecosystem One of the core issues of traditional organization and strategy research is the “selection-adaptation” debate of enterprises [126], that is, the development process of internal and external elements of the organization from the perspective of evolution. In essence, the construction of an innovative ecosystem is an issue of evolution and development. Successful companies are those that are able to respond quickly and adapt to the innovation ecosystem. A rapidly changing environment requires companies to reduce transaction costs and maintain their competitive position through mutual learning and cooperation [88]. Research a large number of dynamic processes that analyze the structure and capabilities of the enterprise’s innovation ecosystem from an evolutionary perspective. For example, Moore describes the whole process of the coordinated evolution of the Wal-Mart organization ecosystem from the perspective of life cycle [29]. Iansiti and Levien analyzed the dynamic process of member structure and strategic choice during the evolution of Microsoft’s innovation

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ecosystem; Li focuses on the technical elements to analyze the evolution of Cisco’s innovation ecosystem and its dominant technology trajectory [66]; Rohrbeck et al. focused on the evolution of the elements of the Deutsche Telekom’s open innovation ecosystem [108]. Adner and Kapoor analyzed the co-evolution process of Airbus’s innovative ecosystem members and their value creation [5]. These studies have emphasized the evolution of the innovation ecosystem and believe that the ability foundation and value creation of enterprise innovation are placed under the idea of dynamic evolution. Emphasis on corporate resources and capabilities depends on the common evolution of other organizations in the innovation ecosystem and dynamic competition and cooperation in the evolution process [110]. Dynamic competition and cooperation exist in the ecosystem [99]. Thus, the study illustrates and demonstrates that adaptation and evolution are core competencies of the innovation ecosystem and emphasizes the importance of the health attributes of the innovation ecosystem. A healthy and innovative ecosystem is productive—it continues to transform innovations such as technology into lower costs and new markets. It is also stable—it has the ability to respond to unpredictable technological changes and to continuously create new segments to increase the value of diversity [51]. Based on the perspective of evolution, relevant research divides the evolution process of the innovation ecosystem into the following three stages. (1) The first phase of the evolution of the innovation ecosystem—the integration of internal resources. The first phase of the evolution of the innovation ecosystem focuses on the integration of internal resources within the enterprise. At this time, the enterprise organization is regarded as the selection system of the interdependence of resource elements [127]. Under the theoretical axis of the organizational resource-based view; the core competence concept; the organizational dynamic capability view; the organizational knowledge view, the enterprise is embedded in the initial state of ecosystem construction and needs to expand the relationship of major external partners. According to the internal resources, knowledge, information, talents, funds, basic elements and interactions of organizational management, through the interaction and coordination of internal management functions, the integration and coordination of the enterprise’s internal innovation ecosystem to the enterprise resources will be realized, and the innovation capability and competitive advantage will be enhanced. (2) The second phase of the evolution of the innovation ecosystem: building a simple innovation ecosystem. e company has turned from the original internal innovation ecosystem construction to peer-to-peer cooperation innovation, including the participation of leading users [128] the development of government-industry cooperation [129], and the construction of customer–supplier relationship networks [130, 131]. From this perspective, the research perspective shifts from within the organization led by the concept of resources and capabilities to organizational knowledge [132–134] and organizational relationships [98] between business organizations and heterogeneous member partners, discussion and knowledge transfer mechanisms within the organization and outside the organization formed by members of peer relationships interact and share knowledge and value creation formed by the interaction relationship [135].

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(3) The third phase of the evolution of the innovation ecosystem—building complex innovation ecosystems. At this stage, on the basis of the original cooperation between industry, university and research institutes, the company carries out collaborative innovation for heterogeneous members such as government, enterprises, universities, scientific research institutions, intermediary organizations and financial service institutions [136, 137]. The interaction of multistakeholders and their co-evolution with the external environment ultimately led to a complex innovation ecosystem [5, 21, 26]. Based on the multi-stakeholders of the innovation ecosystem and their relationship complexity, based on the perspective of knowledge transfer mechanism and organizational relationship of peer-to-peer innovation interaction, heterogeneous subjects and their interaction with the environment [138, 139], organization network [140], social network and embeddedness [141, 142] has become an important theoretical perspective for the innovation ecosystem. Table 3.6 summarizes the stage characteristics of the evolution of the innovation ecosystem. Based on the evolution of the innovation ecosystem, the research is based on a systematic review of the existing literature, summarizing the basic logic of the subject behavior in the evolution process of the innovation ecosystem, focusing on the value creation of ecosystem formation and construction logic, ecosystem construction and evolution logic, network embedded logic for ecosystem member actions, and network management logic in the context of ecosystem structure and function. See Table 3.7 for a summary. Table 3.8 further lists typical empirical studies based on four behavioral logics. Table 3.6 Stage attributes of the evolution of the innovation ecosystem Development stage

The first stage

The second stage

The third stage

Description

Internal resource integration phase

The stage of construction of a simple innovation ecosystem

The stage of construction of a complex innovation ecosystem

Research focus

The integration of internal resources and elements of enterprise innovation and the initial construction of the innovation ecosystem

Peer-to-peer cooperation and linkage between enterprises and external partners

Relationship integration and common evolution of heterogeneous partners

Knowledge transfer theory, organizational relationship theory, business cooperation theory, etc

Platform theory, organizational network theory, co-operation perspective, industry-university-research cooperation theory, complexity theory

Main theoretical Enterprise resource concept, core basis competence concept, dynamic capability concept, knowledge view, etc

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Table 3.7 Main behavioral logic of the innovation ecosystem Leading issue

Ecosystem

Value creation

Network embedding

Concept variant

Ecosystem; innovative ecosystem; commercial ecosystem

Value network; value galaxy

Strategic network; Business commercial network; value network; innovation network network

Nonlinear value creation system

Long-term and purposeful preparation between different but related organizations

An organizational structure that is consciously established for a specific purpose

Description A dynamic and purposeful network of producers and consumers

Network management

Core principle

General management

General management; marketing

General management; marketing

Marketing

Key concept

Value creation; participant symbiosis; ecosystem cooperation

Value creation; interconnected

Professional cooperation; complementary

Network cooperation

Critically influential literature

Chandler [143], Williamson [144], Porter [119], Wernerfelt [90], Teece [145], Brandenburger and Nalebuff [146], Gawer and Cusumano [74]

Porter [119], Katz and Shapiro [147], Normann [148], Christensen [149], Chesbrough and Rosenbloom [150]

Williamson [144], Granovetter [101], Thorelli [151], von Hippel [152]

Anderson et al [153], Uzzi [141], Dyer and Singh [98], Achrol and Kotler [154], Zollo et al [155], Gulati et al [156], Håkansson and Ford [157]

Information technology; communication technology

Cross-industry; manufacturing; information technology

Cross-industry; manufacturing

Telecommunications Policy; Long Range Planning; Journal of Academy of Marketing Science

Industrial Industrial Marketing Marketing Management; Solan Management Management Review; Strategic Management Journal

Empirical Information and background internet technology; communication technology; manufacturing Main journal

Harvard Business Review; Solan Management Review; Strategic Management Review

(continued)

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Table 3.7 (continued) Leading issue

Ecosystem

Value creation

Network embedding

Network management

Main work

Moore [29], Isansiti and Levien [158], Teece [25], Adner and Kapoor [5]

Norman and Ramirez [159], Christensen and Rosenbloom [160], Stabell and Fjeldstad [161]

Jarillo [162], Anderson et al [153], Gulati et al [156], Afuah [163]

Ritter et al [164], Möller et al [165], Möller and Svahn [166]

Source Dodgson and Phillips [167]

3.5.2 Synergistic Mechanism of Innovative Ecosystem The fundamental purpose of enterprise innovation is to achieve value increase, value creation and orderly transfer of value by promoting the innovation process. The Table 3.8 Examples of typical empirical studies on the main behavioral logic of the innovation ecosystem Behavioral logic

Study

Background

Type

Sample source

Main finding

Ecosystem logic

Lyer, Lee and Venkatraman [169]

Information technology

Quantitative study

Software packaging industry

The software industry is like a small ecosystem. With the changes in the Internet and information technology, the structure of the software industry will change. This shows that the ecosystem network is very efficient in promoting information, innovation and resource flows

Adner and Kapoor [5]

Information technology

Quantitative study

Semiconductor; printing industry; equipment industry

Ecosystem external challenges can promote or corrode a company’s technological leadership, especially technological advances or regressions caused by challenges (continued)

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Table 3.8 (continued) Behavioral logic

Study

Value creation logic

Background

Type

Sample source

Main finding

Christensen and Information Rosenbloom technology [160]

Case study

Hard disk drive industry

In addition to the characteristics and degree of scientific and technological change related to the ability of incumbents, the management process and the organization’s response to the dynamic changes of new entrants are also closely related. The third factor that affects the success or failure of incumbents and new entrants is the value network

Huemer [170]

Case study

Logistics provider

In addition to the characteristics and degree of change in technological change and the ability of the incumbent, the dynamics of the management process and the organization’s response to new entrants are also closely related. The third factor that affects the success or failure of incumbents and new entrants is the value network, which provides a valuable alternative logic for understanding the value chain and links the complexity of a range of supply relationships, such as the difference in value creation logic, sticky structure and multiple dependence

Logistics

(continued)

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Table 3.8 (continued) Behavioral logic

Study

Background

Type

Sample source

Main finding

Network embedded logic

Afuah [163]

Information technology

Quantitative study

Microprocessor workstation manufacturing

With the technological change, the original competing ability is eliminated, then the performance of a company will also decrease

Rabinovich, Knemeyer and Mayer [171]

Information technology

Quantitative study

E-commerce

E-commerce has built a supply-relationship network around low-level asset differentiation. In fact, these relationships also provide a network that bundles many complementary services

Hughes, Ireland and Morgan [172]

Cross-industry

Quantitative study

British incubator

The network in the incubator simply indicates that there are opportunities for value creation, and the behavior of the company determines whether these opportunities can be caught

Öberg, Hanneberg and Mouzas [173]

Cross-industry

Case study

Truck manufacturing; electronic advertising system integration; IT sales

In order to adapt to a merger or acquisition process, managers need to quickly adjust their previous networks, but not all managers can adjust their previous network image and network activities to a new level

Network embedded logic

Source Dodgson and Phillips [167]

uncertainty of internal factors and the uncertainty of the external environment in this process will inevitably lead to the high complexity and risk of the enterprise innovation process. Different levels of complexity and risk have different requirements for the synergy between innovation elements and innovation partners. The purpose of

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enterprise collaborative innovation management is to promote the orderly development of innovation through the collaborative implementation of internal innovation elements and external partners on the basis of collaborative demand diagnosis, so as to achieve comprehensive innovation performance of value increase, value creation and value orderly transmission. In order to promote the orderly management of enterprise innovation and build an efficient and healthy enterprise innovation ecosystem, it is necessary to study and discuss the collaborative innovation operation mechanism of the innovation ecosystem [168]. Synergy is a new theoretical perspective on interdisciplinary development. Since the German physicist Haken was proposed in the 1970s, collaborative research has made great progress. Synergy theory has been widely used in social sciences and has begun to play an important role in management science and innovation research. In essence, the synergy mechanism and other mechanisms differ in terms of analysis level, action base, effect, management focus, evolution, and internal mechanism, as shown in Table 3.9. By synthesizing the characteristics of multiple dimensions and drawing on Haken’s definition of synergy, the concept of synergy can be expressed as an interaction mode and mechanism between various elements, elements and systems as a whole, and between systems. Usually through the construction of an ordered architecture, the synergistic effect of the combined effect of “2 + 2 > 5” and partial effects is achieved. Synergy is the fundamental way to realize the self-organization process of the system. The basic logic is to generate a more ordered sequence of parameter sets from the interaction of various elements of the system, and the order parameter set guides the system to a more orderly state; In this process, each order parameter finally forms the unique order parameter of the system through the interaction of competition and cooperation. The order parameter makes the enterprise reach the orderly state and determines the degree of order state. From the concept of coordination and internal logic, the basic reference for collaborative innovation management research is to reduce the complexity of the innovation process by determining the order parameters, that is, to build a collaborative architecture by determining the order parameters, thereby reducing the management complexity caused by separately studying multiple innovation factors. Through the collaborative architecture to form an orderly innovation operation mechanism, to promote the rapid realization of the ordered state. The various behaviors in the enterprise innovation ecosystem, including innovation, contain certain self-organizing features, so enterprise innovation can be guided and explained by building a collaborative architecture. The difference is that the innovation ecosystem is a purposeful system, and its system behavior has both self-organizing characteristics and purposeful, planning characteristics. Therefore, the main point of building enterprise innovation synergy is to integrate the planning and self-organization behavior of the ecosystem main body by establishing an innovative collaborative structure, so that the enterprise can carry out innovation in an orderly manner. The core of the innovation ecosystem synergy mechanism is that collaborative innovation is mainly represented by industry-university-research cooperation, but the industry-university-research cooperation is not spontaneous. This is because the interests of each innovation subject are different from the starting point. If there

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Table 3.9 Comparison of the characteristics of synergy mechanism and other mechanisms Feature dimension

Synergistic mechanism

Other mechanisms (such as integration, synergy, etc.)

Analysis hierarchy

Elements and overall

Element

Action base

System structure reconstruction

Information links based on existing elements

Effect

Emphasize the increase and creation of factors and overall value, as well as the essential changes in the overall attributes of the system

Emphasize the increase in the value of the element and the improvement of the overall efficiency, that is, “1 + 1 > 2”

Management focus

Minimal control and self-management

Maximum control

Feature dimension

Synergistic mechanism

Other mechanisms (such as integration, synergy, etc.)

Evolution

Emphasizing an orderly non-equilibrium Short-term, does not involve state, the internal factor linkage promotion evolution or solidification system is constantly evolving and adapting processes, it is difficult to change effectively to the environment

Internal mechanism

Systematic conflicts and coexistence, achieving efficiency through consensus, and achieving development and innovation through conflict

The process of achieving consistency in the system, which emphasizes harmony and mutual matching, so there is the path dependence

Source Chen and Wang [168]

is no national macro guidance and institutional arrangements, the result is likely to be a zero-sum game. The rationality of the individual leads to the irrationality of the group, and the optimal interest of the individual leads to the minimization of the interests of the group. Collaborative innovation with innovation ecosystem as the core is the process of systematically optimizing and innovating the main elements of innovation., which can be analyzed from two dimensions of integration and interaction [174]. As shown in Fig. 3.8, the integration dimension mainly includes knowledge, resources, actions, and performance and the interaction dimension mainly includes reciprocal knowledge sharing, resource optimization configuration, action optimal synchronization, and system matching between various innovation entities. According to the different positions in two dimensions, collaborative innovation is a process of communication-coordination-cooperation-synergy [175]. First of all, the communication process involves the integration of knowledge. Universities and research institutions, as the main producers and providers of knowledge, play an important role in the dissemination, integration and circulation of knowledge. March believes that knowledge is divided into academic knowledge and empirical knowledge. Academic knowledge emphasizes universal usefulness and always useful, while empirical knowledge emphasizes that it can be directly applied

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to specific situations and has strong spatial and temporal focus [176]. The innovation process is the process of combining and integrating two types of knowledge. Academic knowledge is the basis for understanding and applying empirical knowledge. Collaborative innovation not only focuses on the development and creation of knowledge, but also emphasizes the flexible application and value conversion of knowledge. Second, coordination involves the integration of knowledge and the optimal allocation of resources. The rapid economic growth mostly depends on the consumption and utilization of resources. How to optimize the allocation of resources through collaborative innovation is a problem worthy of in-depth study. Integrate and apply the right knowledge to better optimize resource allocation. Many basic theories and theorems in operational research are used in production practice, which not only optimizes resource allocation, but also greatly saves manpower, material resources and financial resources in the production process [177]. Thirdly, cooperation involves the integration of knowledge, resources and behavior, including knowledge sharing and integration, optimal allocation of resources, and simultaneous optimization of behavior. China’s universities and research institutes generate a large amount of knowledge every year, and various kinds of knowledge are presented in the form of databases, invention patents, literatures, etc., but the knowledge conversion rate in China is very low. This shows that China attaches importance to the production of knowledge, but does not pay attention to the integration, transfer and diffusion of knowledge, and capitalization. In the process of cooperation between industry, academia and research, the optimal synchronization of behavior is neglected. In the process of creating new knowledge in universities and research institutes, researchers dose not considered to commercialize the knowledge and increase the value of knowledge. As an enterprise’s main factor of innovation, the degree of absorption of explicit knowledge and the degree of externalization of tacit knowledge are not high enough. The government needs to improve the policy orientation of collaborative innovation, in order to facilitate the optimal synchronization of actions between universities, enterprises and governments. Finally, synergy involves the full integration of knowledge, resources, behavior, and performance [174]. The matching degree of the system is an important factor affecting the performance. The matching degree between the economic policies formulated by the government and the actual economic operation practices, the matching between the research results of universities/scientific research institutes and the technical needs of enterprises, and the matching of knowledge, resources and behavior within the system will affect innovation performance. Whether integration can be achieved depends on the degree of interaction and cooperation of different elements within the system. The intensity of interaction is related to the extent and frequency of changes in the behavior of the innovation subject, including the exchange of reciprocal information, the systematic matching of performance and simultaneous actions. The higher the degree of integration of the system, the more intensive interactions that will be required [178].

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Performance

Synergy

Action

Cooperation

Resource

Coordination

Knowledge

Communication

Reciprocal knowledge sharing

Resource optimization configuration

Optimal synchronization of actions

System matching

Fig. 3.8 Framework for collaborative innovation. Source Chen and Yang [178]

Based on the essential attributes of collaborative innovation, this section analyzes the synergistic mechanism of the innovation ecosystem from the following two aspects. (1) The synergy between innovative ecosystem attributes and strategic choices: Collaborative innovation emphasizes the core value of knowledge elements and the interaction and transfer of knowledge among members of various levels and heterogeneous ecological subjects. The innovation ecosystem focuses on the response of specific innovations to the external environment after interaction with specific actors. Therefore, based on the knowledge intensity of the core enterprise in the innovation ecosystem and the turbulence of the external environment, the innovation ecosystem attributes and their corresponding strategic choices need coordination of synergistic mechanisms to achieve matching and synergy between innovative ecosystem attributes and corporate strategic choices. Table 3.10 shows a collaborative matching framework for innovative ecosystem attributes and strategic choices, which can form an innovation ecosystem oriented towards infrastructure orientation and knowledge intensity orientation. And based on the level of environmental turbulence, determine the appropriate innovation ecosystem strategy of the enterprise (including the network core strategy: actively improve the overall health of the ecosystem and benefit from this, so that the company can achieve sustainable performance; dominating strategy: occupy and control most of the nodes of the network through vertical or horizontal integration; taking advantage of the profit strategy:

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extract as much value as possible from the network, but not directly control the network; the gap-type strategy: having the expertise to differentiate itself from other members of the network, etc. [51]). (B) The synergy between the innovation level of the core enterprises of the innovation ecosystem and the leading model of innovation ecosystem innovation: Based on the synergy between the innovation ecosystem attributes and strategic choices and the interaction between the core innovation level of the innovation ecosystem and the leading model of innovation ecosystem innovation, Table 3.11 builds a collaborative matching framework for the innovation level of innovation ecosystem core enterprises and innovation-led models. At the horizontal level, through the analysis of the innovation process, the core innovations in the innovation ecosystem can be divided into progressive innovation and breakthrough innovation in terms of technological innovation, market innovation, and organizational management innovation. Progressive innovation refers to the improvement of products or processes under the original technological innovation track; breakthrough innovation refers to the innovation that leads to a huge change in the main indicators of product performance. It has a decisive influence on market rules, competition situation, industrial layout, etc., and may lead to the transformation and reshuffle of the industry in which innovation exists [49]. At the vertical level, tracking the evolutionary characteristics of the innovation Table 3.10 Collaborative matching framework for innovation ecosystem attributes and strategic choices Knowledge intensity

Degree of environmental turmoil

High environmental turbulence

Low environmental turbulence

Infrastructure-oriented innovation ecosystem

Knowledge-oriented innovation ecosystem

Robust ecosystem

Creative ecosystem

Strategic choices for specific companies: 1. Network core strategy 2. Dominant strategy 3. Taking advantage of the profit strategy 4. Gap strategy

Strategic choices for specific companies: 1. Network core strategy 2. Dominant strategy 3. Taking advantage of the profit strategy 4. Gap strategy

Reciprocal ecosystem

Productive ecosystem

Strategic choices for specific companies: 1. Network core strategy 2. Dominant the dominant strategy 3. Taking advantage of the profit strategy 4. Gap strategy

Strategic choices for specific companies: 1. Network core strategy 2. Dominant the dominant strategy 3. Taking advantage of the profit strategy 4. Gap strategy

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Table 3.11 Innovative ecosystem core enterprise innovation level and innovation leading model synergy The innovation degree of the core enterprise Innovation ecosystem Innovation-led model

Technological innovation leading model

Business innovation leading model;

Progressive innovation

Breakthrough innovation

● Key stakeholders and ecological location ● Strategic choice: network core strategy; dominant strategy; take advantage of the profit strategy; gap strategy ● Key stakeholders and ecological location ● Strategic choice: network core strategy; dominant strategy; take advantage of the profit strategy; gap strategy

● Key stakeholders and ecological location ● Strategic choice: network core strategy; dominant strategy; take advantage of the profit strategy; gap strategy ● Key stakeholders and ecological location ● Strategic choice: network core strategy; dominant strategy; take advantage of the profit strategy; gap strategy

ecosystem and its core enterprises and relying on the innovation-led model of the core enterprises of the innovation ecosystem. The innovation-oriented model of the innovation ecosystem can be divided into the technological innovation dominant model and the business innovation dominant model. By combining the key stakeholders of the innovation ecosystem with the ecological location and strategic choices of core companies in the innovation ecosystem (including the core network strategy, the dominant strategy, the taking advantage of the profit strategy, the gap strategy), the innovation degree of innovation ecosystem core enterprise and the process of transformation, transition and mutation in the dynamic evolution of the leading mode of innovation ecosystem innovation can be analyzed.

3.6 Prospects for Innovative Ecosystem Research Today, with economic globalization and information development, the barriers to organizational boundaries are gradually being broken. Future corporate competition will be transformed from a technology competition between individual companies to competition between ecosystems or competition between internal business domains of the system. The theme of competition will also become the overall health status of the ecosystems that the companies foster and depend on. The relationship

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between enterprises changes from pure competition to win–win cooperation and coevolution [88]. Future innovation ecosystem research needs to pay more attention to the following aspects [69]. (1) In theory, the mature research on the innovation ecosystem is based on the description of concepts, characteristics, and cases. The core papers are mostly from the Harvard Business Review. Therefore, it is urgent to find the principles and mechanisms for explaining the innovation ecosystem and its organization from the logic of theory and multi-theory. At the same time, it is necessary to explore the mature constructs of innovation ecosystem research and find the inherent logic behind the phenomena under the practice-oriented. (2) In terms of research methods, the existing research methods are mostly case studies, and the complete empirical research is relatively lacking. At the same time, the research cases are mostly directed at large enterprises [7], and rarely involve small and medium-sized enterprises, suppliers, distributors, universities, research institutes and intermediary agencies. This contradicts the conceptual connotation of multiple heterogeneous subjects in the innovation ecosystem and needs further exploration and improvement. Research also requires a method that accurately analyzes the innovations of core companies in the innovation ecosystem [110], discusses changes in external partners, and analyzes the innovation challenges faced by various stakeholders in addition to value exchange [5]. The competition for organizational capabilities in the future is manifested in the competition of organizations in building commercial platforms and ecosystems. The research on innovation ecosystems needs to be further explored [88]. (3) At the moment of innovation-driven development, Chinese enterprises are in a highly constrained transitional economic system environment [126]. Based on the introduction of digestion, absorption and innovation, independent innovation emphasizes that enterprises rely on independent research and development to complete technological breakthroughs and achieve original scientific and technological achievements [179]. However, the government’s control over scarce resources, the limited resources and capabilities of a single organization [122], the inconsistent goals of the industry, academia and research cooperation [180], and the complexity of technological innovation make the research need to enrich and deepen the connotation of independent innovation. Exploring the heterogeneous subject synergy and mutual benefit symbiosis of the innovative ecosystem paradigm and governance mechanism has become an important direction to integrate resources, enhance enterprise innovation capabilities, and achieve value creation.

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Chapter 4

Enterprise Innovation Ecosystem Based on Core Competence

Innovation ability is an important factor in business success. Why do many companies with strong innovations eventually fail? Because they lack attention to the innovation ecosystem. —Adner Rdner, Professor, Tuck School of Business, Dartmouth College, USA

4.1 The Origin and Connotation of Core Competence 4.1.1 The Origin of Enterprise’s Core Competence The value return of the enterprise is based on the satisfaction of the customer’s demand. The strategic focus of the product and service for the buyer’s market makes the enterprise in a competitive environment and attaches importance to the continued improvement of its own competitive advantage [1]. Through the focuses of these competitions, we find that the ability of enterprise to contain it ultimately determines the success or failure of the competition. Especially in the 1990s, the success of corporate competition is no longer considered as a result of fleeting product development or strategic operations, but as a deep substance in the enterprise: an intellectual capital in the form of corporate capabilities that encourages companies to produce a large number of new products that are unimaginable to consumers [1]. In the process of obtaining and maintaining competitive advantage, the cultivation of internal capabilities and the comprehensive application of various capabilities are the most critical factors, while the business strategy is nothing but the activities and behaviors of the enterprise to realize the potential of intellectual capital and fully apply it to new development areas. In general, enterprise capabilities can be divided into “core” and “supportive” capabilities [2]. Core knowledge or technical capabilities are strategic in nature and they themselves provide a competitive advantage. Supportive capabilities are necessary for success, but are not inherently decisive to an organization’s capability. Supportive capabilities support the absolute leadership of core competencies. © Science Press 2023 J. Chen, Enterprise Innovation Ecosystem, https://doi.org/10.1007/978-981-99-3374-7_4

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In the recent 15 years [3], terms like resource [4, 5], capability [6, 7], technological competence [8, 9], competence [10], skill [11], intangible resource [12], invisible asset [12], core competency [13, 14] continued to appear in the economic and corporate management literature. This is because the rise of competency-based competition has made (core) capability management increasingly valued by management theorists and industry, and it has become a hot issue in enterprise management [15]. Prahalad and Hamel pointed out that the organization’s advantage in static resources such as production equipment is not enough to ensure the sustainable competitive advantage enterprise. Because static advantage is difficult to create competitive barriers for innovation followers in the process of sharing innovation revenues, so that enterprises will eventually lose the economic incentives for innovation [16]. They creatively put forward the concept of “core competence” of the enterprise and clearly believe that core competence is the basis for the sustainable competitive advantage of enterprise. It supports the operation of core products and core businesses of the enterprise and outputs terminal products for customers to realize value creation, as shown in Fig. 4.1. Nowadays, the core competence concept has become a core source of competitive advantage for enterprises. The theory of this view is the result of the intersection of economics and management, and it is mainly originated from strategic management theory, economic theory, knowledge economy theory and innovation theory. 1. The Theoretical Origin of the Core Competence of Enterprises No.1: The Development of Strategic Management Theory Since the 1960s, with the development of management theory and practice, strategic management theory has experienced several generations of development. In the 1960s, the first generation of strategic management theory emerged, represented by Ansoff and Andrews. For the first time, they clearly proposed the company and the competition strategy, emphasizing that strategic management is the key to winning the competition, and pushing the concept of “strategy” to the practice of business management [17, 18]. The second generation of strategic management theory represented by Chandler, which emerged in the 1960s and received widespread attention in the 1970s and is still widely recognized. Its famous argument “Structural Following Strategy”, which refers to the organizational structure design to the height of strategy, emphasizes that the organizational structure should be adjusted accordingly with the strategic adjustment, and that the multi-business structure is the main form of diversified companies [19]. In the 1980s, the third generation of strategic management theory represented by Porter appeared. He proposed five competitive strategic analysis models, so that the strategic environment can be analyzed, enterprises can determine their own strategies based on the analysis of the environment, and propose three general strategies of cost leadership, differentiation, and uniqueness [20]. In the mid-1980s, the fourth generation of strategic management theory emerged, represented by the famous Canadian management scientist Mintzberg. He

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End Product

Business 1

Business 2

Business 3

Business 4

Core Product 2

Core Product 1

Core Competence 1

Core Competence 2

Core Competence 3

Core Competence 4

Fig. 4.1 Supporting effect of core competency

proposed a strategy of crafting, pointing out that strategies must constantly adapted to the changes of the environment [21]. Inspired by Andrews’ concept of distinctive competence, in 1990 Prahalad and Hamel took a significant impact on the concept: introducing the core competence into the management community, which marks the fifth generation of strategic management theory. The strategic management theory of enterprise resource concept was formally established. The emergence of the theoretical enterprise resource concept means the return of scholars to the “resources” concept of enterprise [22, 23]. To explain the outstanding performance of an enterprise, the strategy is seen as “finding rent” [24]. The strategic concept of enterprise resource management believes that the most important principles of strategic management is to give the heterogeneity of possessed assets through the accumulation and allocation of resources, so as to obtain a sustainable competitive advantage, which also means to obtain “Continued rent”. It believes that diversified companies are not just combinations of businesses, but also combinations of capabilities. Companies should develop and implement strategic management based on core competencies [16]. The enterprise resource concept leads the sight to the inside of the enterprise, paying attention to the heterogeneity and growth of the enterprise. It pointed out that Porter’s five competitive

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models overemphasized the analysis of the environment but did not pay enough attention to the foundation of the company’s internal capacity realization strategy, and it considered that core competence is the source of competitive advantage. It is essential for enterprises to acquire sustainable competitive advantages and cultivate, improve, and apply core competencies. 2. The Theoretical Origin of the Core Competence of Enterprises No.2: The Development of Economic Theory: From Neoclassical Economics to Enterprise Resources The theoretical understanding of economics towards enterprise has gone through the development process from neoclassical economics to corporate resource concept. Neoclassical economics regards the enterprise as a profit maximization organization, and it optimizes input and output according to this criterion. Its basic analysis unit has factor input, product output, production function, profit, price and cost. The basic question that transaction cost theory (represented by Coase and Williamson) focuses on is the reason why enterprises exist in the market economy and the boundaries of enterprises. It believes that transaction cost is the answer to the basic question and the function of uncertainty, bounded rationality, asymmetric information, and asset specificity [25]. The principal-agent theory mainly studies the relationship between the resource owner (principal) and the resource manager (agent). It solved the fundamental problem that the contract design makes the principal and agent incentive compatible under asymmetric information conditions. Evolutionary economics (represented by Nelson and Winter) focuses on the evolution of firms, including dynamic processes such as selection mechanisms and mutation generation [26]. The enterprise resources theory pays attention to the competitive advantage and enterprise development, the research focuses on the resources and capabilities of enterprises, and regards the technology and management possessed by enterprises as a special ability. Economics’ understanding of enterprises has gone through a process from homogeneous to heterogeneous, from external to internal, from shortterm competitive advantage to focusing on sustainable competitive advantage, and gradually approaching the essence of the enterprise. The prosperity of the enterprise resource concept stems from the need of economics to explain the long-term competitive advantage of enterprises. Harvard University’s original structure-behavior-performance theory focuses on explaining the competitive advantage of enterprises from the theory of industrial structure, emphasizing the role of industry-related factors such as monopoly, industrial entry and exit barriers on competitive advantage. This theory is suitable for explaining the short-term competitive advantage of enterprises, but there are certain deficiencies in exploring long-term competitive advantages: It has been criticized for explaining the shortcomings of the long-term and dynamic nature of corporate competitive advantage. However, the enterprise resource concept that pays attention to corporate heterogeneity from the enterprise level has a stronger explanatory power for longterm competitive advantage. Therefore, in recent years, the research on enterprise resource view economics has increasingly attracted the attention of the theoretical and practical fields. The enterprise resource concept economics can be traced back to the

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point that Penrose proposed in 1959 to treat enterprise as “a collection of resources”. According to Penrose, enterprise should be seen as “a collections of resources”, rather than classical economic theory as “products—a collection of markets” [22]. As a kind of special resource for enterprises to use and allocate resources in a unique way, the core competence of the enterprise has become the research focus of the enterprise resource concept. In this way, economic theory and corporate strategic management theory have the same goal, and they all turn their attention to the core competence of enterprises. In this way, economic theory and enterprise strategic management theory share the same goal, and they both turn their attention to the core competence of enterprises. 3. The Theoretical Origin of the Core Competence of Enterprises No.3: Knowledge Economy Theory In the mid-1990s, especially since 1996, the knowledge economy theory has become a hot topic in the field of economics and management. The important drivers of this trend are as follows: ➀ Economic globalization: it is putting terrible pressure on enterprises in terms of improving adaptability, innovation and processing speed; ➁ The value of expertise is recognized and it has been integrated into organizational processes and daily work to cope with the above pressures; ➂ Knowledge is recognized as a unique factor of production; ➃ Cheap computer networking: it will ultimately provide us with the tools to work and learn from each other. According to the OECD definition, the knowledge economy is an economy dominated by the production, circulation and consumption of knowledge and its products [27]. The most intuitive and basic feature of the knowledge economy is the unprecedented advancement of knowledge as a factor of production. Knowledge needs have become the premise of human beings to fulfill all other expectations, and knowledge production itself has become the center of social and economic life. The knowledge economy has become another profound evolution after the industrial civilization—the era centered on capital production. The knowledge economy has caused changes in economic theory and practice, while it has also put forward new requirements for enterprise management. In particular, how companies conduct knowledge management, that is, how companies acquire, create, disseminate, and apply knowledge to achieve sustainable competitive advantage under new knowledge economy conditions [27]. Allee believes that updating knowledge is the key to maintaining competitive advantage. Updating includes not only creating new knowledge, but also abandoning old knowledge. It requires Continued exploration and self-reflection of knowledge and the learning process itself. A structured approach to organizing enterprises around knowledge is to develop a core competency strategy, not only from the perspective of enhancing current knowledge utility, but also from the perspective of acquiring future knowledge. The term “core competency” here comes from the epochal article “The Core Competence of Business” published by Prahalad and Hamel in the Harvard Business Review, 1990. Based on this, Allee put forward the concept of core knowledge capability and core operational capability. He believes that core knowledge capability and core operational capability are two distinct but closely related aspects of identifying organizations’ core operational capability are processes and functions

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that enable companies to produce high quality products and services at high speed and efficiency. Core operational capability is the regular ability of many enterprises to succeed. In terms of core operational capability, core knowledge capability is a category of expertise, knowledge, and technical knowledge that is unique to a particular business. Specific abilities are difficult to imitate because they evolve in a company-specific cultural and historical atmosphere [28]. With core competency, people at all levels of the organization can clearly understand and communicate the basis of business decisions. In other words, enterprises have a center of knowledge management. In this way, enterprise knowledge management will eventually focus on core competency management issues. In order to gain a sustainable competitive advantage in the era of knowledge economy, the core competence of the enterprise is still necessary. The advent of the knowledge economy era has given the core competence of enterprises new characteristics of era, and the theory of knowledge economy provides a new perspective for the study of core competence. 4. The Theoretical Origin of the Core Competence of Enterprises No.4: Innovation Theory In recent years, innovation has been increasingly valued by business management theory and practice. High-efficiency technological innovation has become the key to success for the company [29]. Therefore, as an important part of the innovation theory, the research of enterprise technical capability and innovation capability has become a research hotspot of experts and scholars in economics and management at home and abroad, and many related theoretical and empirical studies have emerged [8, 30–32]. Various concepts related to enterprise technical capability and innovation capability are proposed, such as absorption capacity [33], relative absorption capacity [34], transformation capability [35], technological innovation capability, technical capability, and technical core competence [36]. An increasingly obvious trend of innovation theory is that the technological capabilities and innovation capabilities of enterprises and the core competence of enterprises have increasingly strong convergence in concept [37]. The reason why technical ability and innovation ability of the enterprise are consistent with the core competence of the enterprise, it is probably because that the concept of core competence is expanding and thus infiltrating into the innovation theory. However, in essence, there are two main reasons for this convergence. First, the innovation theory’s research on innovation performance pays more and more attention to the impact of innovation on the sustainable competitive advantage of enterprise, thus leading the research of technical ability and core competence to the core competence of the enterprise. Second, many studies on core competencies believe that the innovation process is the core of the establishment, improvement and application of core competence, and the innovation process has become the carrier of core competence research, the core competence is ultimately reflected in the performance of the enterprise and depends on the high-efficiency technological innovation of the enterprise. In this way, the innovation theory will eventually lead to the study of the core competence of the enterprise. The identification of the core competence of the innovation theory not only finds a new theoretical explanation for

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the decision-making role of innovation on the sustainable competitive advantage, but also provides a reasonable carrier for the study of the core competence theory of the enterprise.

4.1.2 Connotation and Measurement of Core Competence 1. The Connotation of Core Competence Prahalad and Hamel pointed out that core competencies are “accumulative knowledge in the organization, especially on how to coordinate different production skills and organically combine the knowledge of multiple technical genres” [16]. The core competence of an enterprise has the following characteristics [38]: First of all, the core competence can bring the competitive advantage of the enterprise, and it is the glue that links the existing business of the enterprise and is the engine for developing new business. Second, core competence has sufficient value to provide users with fundamental benefits or utilities. Finally, core competence is unique and not easily imitated by competitors. The concept of enterprise capability is a further in-depth understanding of the essence of the enterprise, it explains the source of modern enterprise competition from the internal source of the enterprise and has important practical guiding significance. For enterprises organized around core competence, all production and operation activities are based on capabilities, and such enterprises are self-organized. With the focus on core competence, people at all levels of the organization can clearly understand and communicate about the basis of business decisions. Employees are generally more proactive in meeting the needs of their customers. They organize themselves and work with the workforce to provide fast, qualified service. To expand their core competencies, they often do cross exercise and test their skills on larger scales [39]. Based on the proposed concepts and characteristics of the core competencies, Prahalad and Hamel further analyzed the connotation of core competence from five dimensions: competition foundation, company structure, business unit location, resource allocation, and value increment of senior management team. As shown in Table 4.1 Javidan further distinguishes the progressive relationship between resources, skills, abilities and core competencies, and regards core competence as the most valuable and difficult to manage types of organizational capabilities, as shown in Fig. 4.2. As Prahalad and Hamel creatively proposed the basic concept of “core competence”, scholars in the field of economic management discussed the connotation of core competence of enterprises in detail, and 8 research perspectives were formed: Integration Perspective, Network Perspective, Coordination Perspective, Combination Perspective, Knowledge Carrier Perspective, Component-architecture Perspective, Platform Perspective, and Technical Ability Perspective. The summary is shown in Table 4.2 [40, 41].

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Table 4.1 Analysis of the core competence of enterprises Analytic dimension

Core capability description

Basis of competition

Capacity building and inter-organizational competition

Company structure

Combination of capabilities. Core products and core business

Business unit location

Strategic business unit is a potential reserve of core competencies

Resource allocation

Business and ability are the basic units of analysis: senior management assigns capital and talent

Value increment of senior management team

Clarify strategic structure and capacity building to ensure future development

Source Prahalad and Hamel [16] Fig. 4.2 Core competencies: from resource to capability upgrade. Source Javidan M. Core competence: what does it mean in practice?. Long Range Planning, 1998, 31(1): 60–71

Core Competence Increase

Capability Value

Difficulty

Skill

Resource

2. The Measurement of Core Competence [41, 42] With the deepening of core competence research, the issue of core competence measurement has received increasing attention. However, so far, there have been few systematic studies on core competence measures, and there have been fewer large-scale statistical studies on capacity measures. Therefore, empirical research on the quantification of the nature and role of organizational capabilities is promising [10]. The core competence measurement method of an enterprise is an important tool for understanding core competence. In general, the core competence measurement of an enterprise is based on the definition of core competence, and it is more deeply portrayed. The existing methods for measuring core competence can be divided into four categories: non-quantitative description, semi-quantitative method, quantitative method, semi-quantitative and quantitative combination method. Table 4.3 gives a brief description of them. As can be seen from Table 4.3, various measurement methods are closely related to capability definition. It is fair to say that the ability definition determines the measurement method to a certain extent, and the capability measurement is a further deepening and supplementation of the capability definition.

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Table 4.2 Summary of main points on the core competence of enterprises Research perspective

Different focus

Capability representation or dimension

Advantage

Disadvantage

Integration perspective (Prahalad and Hamel [16]; Kesler, Klostad, and Clark [43])

Integration of different skills and technology flows

Text description, it is the symbol of organization, such as Sony’s microfilming ability

Emphasis on ability integration to facilitate good communication and communication between inside and outside the organization

Poor decomposition, not hierarchical

Network perspective (Klein, Gee, and Jones [44])

Skill network A network of Decomposable, skills and their directly into the interrelationships skill layer, intuitive

The focus is not obvious, and the organizational culture factors are not considered enough

Coordination perspective (Sanchez, Heene, and Thomas [45]; Durand [46])

Coordination of various assets and skills

Superior assets, cognition capabilities, procedures and routines, organizational structure, behavior and culture

Emphasis on coordinated configuration, so three of the five elements of capability are related to coordinated configuration

Poorly hierarchical, too much emphasis on organizational and cultural factors

Combination Combination Combination of perspective of various technology, management (Prahalad [47]; Coombs abilities processes, and [48]; Coyne et al., 1997) group learning; Combination of technical and organizational capabilities; Combination of insight/ predictiveness and frontline execution capabilities

Emphasis on the combination of abilities, clear decomposition, and certain operability

Poorly hierarchical

(continued)

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Table 4.2 (continued) Research perspective

Different focus

Capability representation or dimension

Advantage

Disadvantage

Knowledge carrier perspective (Leonard-Barton [14])

Knowledge carrier

Use various knowledge carrier to indicate employees, technical systems, management systems, values and practices

Emphasis on the indicative characteristics of the ability, the ability carrier can be clarified, and it has certain operability, which can be studied in depth with the project and the enterprise

More emphasis on the knowledge stock characteristics of capabilities, insufficient attention to the dynamics of capabilities

Component-architecture Capability composition perspective (Henderson and Cockburn [10])

Component capability and architecture Capability

Decomposable and operable, with a systematic view

Poorly hierarchical and dynamic

Platform perspective (Meyer and Utterback [49]; Meyer and Lehnerd [50])

Effect to the production platform

User insight, product technical capabilities, manufacturing process capabilities, organizational capabilities

Connect to the market through the product platform, emphasizing the market, two of the four modules are market-related

Not comprehensive, Insufficient consideration for organizational culture factors

Technical ability perspective (Patel and Pavitt [8])

Relative technical ability indicated by patent

Patent share and Quantitative obvious technical description by advantage patent

There are limitations to using patents as indicators, and organizational culture factors are not considered

The measurement of core competence must reflect the essence of core competence accurately, and should meet the following five principles: ➀ Hierarchy and system. The core competence itself has a certain hierarchical structure and is a system with a specific hierarchy. Therefore, the index system adopted by the core competence measurement should also have a hierarchical structure and system. ➁ Comprehensiveness. The measurement method and indicator system should strive to reflect all aspects of core competence, reflecting the attributes of each level and dimension, so as to reflect both its quantitative attributes and its qualitative attributes. It can reflect both its clearly stated elements and its silent components. ➂ Subdivision. In order

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141

to thoroughly and comprehensively reflect the inherent nature of core competence, the index system should be subdivided to an appropriate level. If it is too obscure, it cannot reveal its essence. If the rules are too comprehensive, it will cause distortion. ➃ Data Availability. If the indicators included in the core competence measurement index system are purely quantitative, it is necessary to obtain true and reliable series data. If they are semi-quantitative, it is necessary to strive for well-defined evaluation criteria and find suitable personnel for evaluation. ➄ Reasonable Validity. The core competence measurement method can reasonably and effectively reflect the essence and characteristics of core competence. Table 4.3 Summary of enterprise core competence measurement and methods Category

Method

Scholar and year

Non-quantitative description method: instead of using quantitative or semi-quantitative indicators, describe the core competencies in words or charts

Description

Prahalad Core competence and Hamel is group learning [16] in an organization, especially the ability to coordinate different production skills and integrate different technology flows. The three core competence judgment criteria are extensibility, contribution value, and difficulty in emulating

Examples: NEC’s VLSI (very large scale integration) and system integration capability; Honda’s engine; Cannon’s optical, imaging and microprocessor control

Kesler et al. [43]

Asking “Who are we? What is our expertise?”

Network map

Capability definition

Core competence is the hallmark of the organization

Klein et al. Core competence [44] is a set of skills

Measurement method

First identifying the company’s skill map, then perform cluster analysis to find the relationship between the skills and draw a skill network to express the company’s core competence (continued)

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Table 4.3 (continued) Category

Method

Semi-quantitative Platform method method: construct an index system, score the indicators through subjective judgment, and then comprehensively calculate

Quantitative method: measured by a strictly measurable indicator

Scholar and year

Capability definition

Measurement method

Meyer and Core competence Utterback is the foundation [49] of the product. It is embedded in the people and assets that create the company’s new products. It is divided into four dimensions: product technology, understanding of user needs, distribution channel, and manufacturing capability

Understanding the industry and the history of the company’s product development experts use the five-point system to weight or simply average the four dimensions of core competence, and then evaluate the core competence level

5 elements method

Durand [46]

Competence includes 5 elements of superior assets, cognitive capabilities, procedures and practices, organizational structure, behavior and culture

Evaluating the 5 elements of competence from research and development, design and industrialization, procurement, supply, manufacturing, marketing, distribution, sales, overall management, etc.

Patent measurement method

Patel and Pavitt [8]

The core technical competence is the technology that has both internal advantages (more resources allocated by enterprises) and external advantages (relative advantages of competitors)

Using patent data to calculate patent share (PS) and apparent technical advantage (RTA), based on PS-RTA two-dimensional map identification

(continued)

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Table 4.3 (continued) Category

Method

Scholar and year

Semi-quantitative Component-structure Henderson and quantitative method and combination Cockburn method [10]

Capability definition

Measurement method

Competence consists of component capability and architectural capability

Separate component capabilities and architecture work capability indicators and score these indicators by combining data and interviews

Based on the description of the core competence measurement method in Table 4.3, Table 4.4 systemically and comprehensively further valued the nonquantitative description method, semi-quantitative method, quantitative method, semi-quantitative and quantitative combination method from the 6 aspects of level and system, comprehensiveness, degree of subdivision, and data availability, reasonable validity, and merit. Based on the valuation and comparison results of Table 4.4, it can be seen that each type of measurement method of core competence has its own advantages and disadvantages, and each has its own reference.

4.2 The Architecture and Management Process of Core Competence 4.2.1 Basic Architecture of Core Competence In the development of the enterprise core competence theory, the definition of it has been discussed. The previous section summarizes the explanations on the connotation of enterprise core competence integration perspective, network perspective, coordination perspective, combination perspective, knowledge carrier perspective, component-architecture perspective, platform perspective, and technical ability perspective. Among them, the integration perspective is that core competence is the group learning in an organization, especially the ability to coordinate different production skills and integrate different technology flows [16, 43]. The network perspective believes that core competence is a set of skills that can be represented by a skill network [44]. The coordination perspective points out that the ability to coordinate and allocate assets can be seen as assets of different natures, because a capable enterprise is not just a collection of assets and skills, it is a key element in an enterprise’s capabilities [45, 46]. The combination perspective holds that under the market competition conditions, the core competence takes the enterprise technology

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Table 4.4 Brief comments on the measurement methods of four core competences Item

Non-quantitative Semi-quantitative description method method

Hierarchy and system

Insufficient

Quantitative method

Semi-quantitative and quantitative combination method

Generally Insufficient improved with the complexity of the indicator system, better than quantitative and non-quantitative methods

Generally improved with the complexity of the indicator system, better than quantitative and non-quantitative methods

Comprehensiveness Insufficient

Does not include quantitative indicators

Insufficient

Depending on the indicator system design, better than the other three methods

Degree of subdivision

Insufficient

Sufficient

Insufficient

Sufficient

Data availability

Sufficient

The design of the Sufficient indicator system is the key, generally not as good as the quantitative method

Reasonable validity Effective in The design of the Have certain some ranges and indicator system is one-sidedness levels the key, strongly subjective

Merit

Intuitive and easy to communicate shallowly inside and outside the company

The design of the indicator system can be both simple and complex, and it can reveal in detail the details of the core competence of the enterprise

Simple indicators and good quantitative

The design of the indicator system is the key, generally not as good as the quantitative method Index system design is the key, better than semi-quantitative and quantitative method Combining the advantages of both quantitative and semi-quantitative methods, both methods are comprehensive and reflect more details

sub-process as the core, and acquires the ability of the maintaining competitive advantage through the support and interaction of enterprise strategic management, manufacturing, marketing, and organizational interface management sub-process [47, 48]. The knowledge carrier perspective believes that core competence is a collection of knowledge that identifies and provides competitive advantage, and it is embedded in the knowledge and skills of employees, technical systems, management systems,

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values and rules [14]. The component-architecture perspective believes that core competence is essentially a collection of component capabilities and architectural capabilities [10]. The platform perspective believes that core competence involves insights into users, product technical capabilities, manufacturing process capabilities, and organizational capabilities [49, 50]. The technical ability perspective emphasizes that the core competence is oriented to the patent share of the enterprise and the obvious technological advantage compared to the competitor [8]. All the theoretical perspectives above have their own advantages and disadvantages. The author believes that the core competence of an enterprise lies in all levels involved in the enterprise (including the business environment, enterprise level, technology integration level, etc.), consists of the capability element and the capability structure, and enables the enterprise to obtain a sustainable competitive advantage and developing dynamical knowledge system [51]. Its meaning has four aspects. First, the core competence is a knowledge system consisting of a competence element and a competence architecture. Second, the core competence has a hierarchical structure, that is, it exists at all levels involved in the enterprise, including the business environment level, the enterprise level, and the technology integration level. Third, core competence is the source of sustainable competitive advantage; Forth, the core competence is dynamically changing. As a result, research has formed the basic architecture of core competence, as shown in Fig. 4.3. The basic structure and main content of the architecture system are as follows. 1. Competence System: Capability Element and Capability Architecture The integration of the enterprise system concept and the enterprise competence concept can be considered in a certain sense. An enterprise is a competence system,

Competence System

Competence Element

Competence Architecture

Operating Environment

Environment Element

Relationships Between Environment Elements

Enterprise

Intelligence of Subsidiary Companies

Organizational Structure (hard architecture) / Culture (soft architecture)

Technology Integration

Competence Level

Subject Sublayer

Subject

Technology Sublayer

Technology Element

Product Sublayer

Product Subsystem

Relationships Between Product Subsystems

Subsystem Sublayer

Component

Relationships Between Components

Fig. 4.3 The basic architecture of core competence

Relationships Between Subjects

Relationships Between Technologies

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and its core competence is its subsystem. The knowledge characteristics of enterprise (core) competence have been widely recognized [14, 16]. The core competence has systemic commonalities, consisting of various elements and relationships between elements, each component is a competence element, and the relationship between competence elements is a competence architecture. In fact, in the component-architecture perspective and network perspective, “core competence is a system” is an implied premise. Component-architecture perspective believes that competence consists of component competences and architectural competences. The network perspective believes that core competence is a skill network, which consists of various skills and the relationships between them. The level of technology integration can be divided into four sublayers of discipline, technology, product, and subsystem: Knowledge about a single discipline (such as material mechanics, heat transfer, etc.) belongs to the competence element of the subject sublayer. Knowledge about a single technology (such as welding, cold work, etc.) is the competence element of the technology sublayer. Knowledge about a product subsystem (such as refrigerator refrigeration system, boiler steam water system, TV movement, etc.) belongs to the competence element product sublayer. Knowledge about a product component (such as an evaporator in a refrigerator refrigeration system, a heat transfer element in a boiler soda system, electronic components in a television movement, etc.) is a competence element of the subsystem sublayer. However, they did not explicitly propose the concept of competence system, nor did they point out and emphasize the hierarchy and dynamics of the competence system. The competence element is the knowledge about the various components (such as environmental elements, subsidiary functions, technical elements, etc.) involved in the enterprise. It is the basic component of the core competence system of the enterprise and the basis for mastery and application. For example, the understanding of government and the ability to actively use government policies are competence elements at the level of the business environment. Knowledge about marketing such functions is a competence element at the enterprise level. The competence architecture has two meanings: First is the knowledge about the relationship between the constituent elements of the enterprise (such as between environmental elements, between subsidiaries, between functions, between technical elements, etc.). Second is the knowledge of the relationship between the various levels of competence elements. That is to say, it includes knowledge about the relationship between the constituent elements of each level, as well as the ability to use the ability elements, can integrate them in a creative way, and develop new competence elements and competence architectures. Due to the objective existence of the architecture, the architectural concept was introduced into the field of innovation and competence research. Henderson et al. proposed the concept of architectural innovation. They believe that architectural innovation is “the way to change the connection of components, while maintaining the core design concept (the basic knowledge related to components is also unchanged)” [52]. Among them, the parts are “the core design concept contained in the product, the entity is independent, and it is an integral part of the clear function.” Prencipe believes that from the product sublayer, product-related knowledge includes component knowledge, architectural

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147

knowledge, and system knowledge. Architectural knowledge is about the connection between components as a system and their interaction, and system knowledge is about the whole system [53]. In fact, what he calls the architectural knowledge and system knowledge belongs to the competence architecture mentioned here. Among them, the architecture is limited to the product sublayer, generally refers to the product architecture. Henderson et al. extended the concept of architecture to the discipline and organizational level, and they proposed the concept of architectural competence: It includes cross-disciplinary integration between disciplines, cross-border communication and integration within organizations, and the collaboration with outside organizations, etc. They believe that there is a significant positive correlation between architectural competences and corporate innovation efficiency in the pharmaceutical research environment [10]. This book extends the architectural concept to the operating environment, enterprise, discipline, technology, product, core subsystem and other levels, that is, the relationship between environmental elements (such as new entrants, substitutes, suppliers, customers, competitors, and relationships, etc.), the relationship between the various components of the enterprise (such as the relationship between functions, the relationship between subsidiaries, etc.), the relationship between related technologies, and the relationship between product components. 2. Competence Level The level of core competence system stems from the hierarchy of competence carriers (external) and degree of integration (inclusion). The ability of the business environment level can be referred to as environmental ability, and it is the ability to recognize and respond to the environment. That is the ability to identify social and technological developments, and actively cooperate with governments, suppliers, users, competitors, alternative producers, universities, and research institutes to create a good corporate ecological environment. Enterprise-level abilities include strategic management abilities, management awareness, core talent management abilities, corporate research and development abilities, manufacturing abilities, marketing abilities, innovative capital investment abilities, integrated operations and technology abilities of various subsidiaries (business units), and interface management abilities. In the level of technology integration: the ability of the subject sublayer is the ability in all relevant subjects and the ability to integrate these subjects. The abilities of the technology sublayer are the capabilities of the relevant technologies and the ability to integrate these technology flows and related skills. The abilities of product sublayer are the knowledge of each product subsystem and the overall architecture of the product, as well as the ability to integrate relevant disciplines, technologies, and skills into products and subsystems. The abilities of subsystem sublayer are the knowledge of the overall architecture of each product component and subsystem, as well as the abilities to integrate relevant disciplines, technologies, and skills into product components and subsystems. The core competence of the enterprise is the source of sustainable competitive advantage, which provides the impetus for the development of the company’s core products and final products. According to the corporate resource concept, the core

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competence can bring a sustainable competitive advantage because it can generate Continued rent. If the competence element or architecture does not generate a continued rent, it is a general business competence. The sustainability of the competitive advantage brought by the core competence of the enterprise is closely related to its dynamics. If the core competence of the enterprise is no longer dynamic, it will be self-denied and not called core competence. In fact, the core competence elements and competence architectures at all levels are dynamically adapting to the changes in the internal and external environment of the enterprise.

4.2.2 The Management Process of Core Competence [39] The four processes of selection, construction, use, and protection of core competence form the basis of the core competence management architecture, as shown in Fig. 4.4. The framework emphasizes that under the guidance of corporate goals and corporate strategies, enterprises can output core products and create value returns through the identification and management of core competence. The management process of core competence is the key, which includes the selection, construction, protection, and use of core competence. The interrelationships between management processes are represented by two-way arrows to show that the processes interact with each other. The interaction between core competence management processes, corporate strategy, and corporate goals is also evident. The architecture includes core competence identification, which is the basis for choosing core competence. The architecture also includes core products that are a natural consequence of the efficient management of core competence.

Corporate Goal

Corporate Strategy

Building Core Competence Identifying Core Competence

Choosing Core Competence

Using Core Competence

Protecting Core Competence

Fig. 4.4 Enterprise core competence management process architecture

Core Product

4.2 The Architecture and Management Process of Core Competence

149

1. Choosing Core Competence The task of the process is to determine that what competence to develop and which is key core competence through a comprehensive analysis of market and technology future trends. Companies must understand their customers in order to determine what skills can satisfy the customer’s fundamental value. For example, as early as the 1970s, NEC realized that the computer and communications industries would be closely integrated, and that if there were core competences in semiconductor technology [16], there would be a lot of business opportunities in the computer and communications industries, so the company has developed semiconductor technology as its core competence goal. 2. Building Core Competence Companies can strengthen their core competences by acquiring and integrating the skills, technology and knowledge they need. The external core competence building activities are mainly: mergers and acquisitions of companies that help strengthen core competences. Join strategic alliances to absorb the core competences of partners as much as possible or to achieve mutual trust between partners and share core competences through a win–win model. As mentioned above, NEC has joined many strategic alliances after establishing its core competences in semiconductor technology with the goal of building the core competence quickly and at low cost. The leaders of NEC’s research department, in summarizing how to gain core competencies in the 1980s, said that joining the alliances is a very fast and inexpensive way to use outside technology from an investment perspective [16]. The internal core competence building activities are mainly the integration of competence elements. Core competence is holistic competence that is organically linked by different competence elements, and a set of disparate skills, expertise and abilities are not called core competence. The essence of the integration of competence elements is to optimize the allocation of internal resources of the enterprise at the height of cultivating the core competence of the enterprise. 3. Using Core Competence After building a core competence, an enterprise must play its role through the use of core competence and ultimately realize its value in the market. The first is to produce core products. The core product is an intermediate product between the core competence and the final product. For example, the core motherboard of the VCD assembled in China is a core product. Because the core product is based on a unique core competence, it can avoid the fierce competition in the final product market. The sales revenue of core products can promote the development of core competences in return. The second is to provide the production and service of the final product. Products and services based on core competences have their own characteristics and can build their own brand and customer loyalty. The final step is to identify new business opportunities and quickly react to them. The enterprise’s

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core competences can form a visual strategy that enables organizations to leverage existing core competences to capture new business opportunities and expand. 4. Protecting Core Competence Core competence must bring value to the enterprise, and the exclusivity is a must, so it is necessary to strengthen the protection of core competence. The core competence protection process is to protect core competence by maintaining, monitoring, and updating. The first is to try to maintain your core competences and prevent yourself from losing useful core competences. Prahalad and Hamel [16] pointed out that the four situations of losing competitive advantages, that is, the core competence shrinks due to lack of capital investment, becomes fragmented due to diversification, succumbs to alliance partners or is expelled by a conducting business process. An enterprise must also be able to distinguish between poor business processes and potentially valuable core competences that are embedded in the business process. The second is to prevent core competences from being transferred. When participants’ contributions are easily transferred (such as engineering drawings, computer disks, or in the minds of a few technical backbones), easy to interpret (generic formulas and symbols), and easy to absorb (skills or core competences independent of any particular cultural environment) core competence is the most likely to be transplanted. The last is to reduce the observability of core competence. For example, in a joint venture company with a core competence to separate sensitive technology or core product into the parent company’s production, the semiconductor industry eliminates the observability of integrated circuit products and designs by infiltrating non-removable resins into the integrated circuit. Every enterprise must develop more core competences that are hidden, less perceptible, and less accessible. The core competence management architecture provides guidance for specific enterprise management processes, and it manages core competence through specific enterprise management processes such as choosing core competence, building core competence, using core competence, and protecting core competence. Compared with the traditional corporate management process, the advantages of the core competence management process in terms of strategy orientation, organization, culture, coordination, knowledge, talents, etc. are shown in Table 4.5.

4.3 Key Elements of Core Competence Management 4.3.1 Core Competence Elements Focus—Core Technology and Technology Capabilities Under the background of rapid technological development and global market turmoil, enterprises are facing more severe international competition. Since the reform and opening up, China’s investment in basic research and applied research and the R&D

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Table 4.5 Comparison of core competence management and traditional corporate management Comparison item Traditional corporate management

Management based on core competence

Strategic orientation

External environmental determinism

Internal resources, competence determinism

Organization

Organization based on final product

Organization based on core competence and core product

Comparison item Traditional corporate management

Management based on core competence

Culture

Focus on performance within the department, cross-departmental communication and cooperation and cooperation difficulty

Focus on overall performance, emphasizing cross-departmental communication and cooperation

Coordination

Whether it is a standard that benefits the Whether it is conducive to the immediate interests? long-term standard of core competence

Knowledge

No clear goal for knowledge, temporary Have a clear goal of the required organization with production needs knowledge, work hard and carry out knowledge management

Talent

Incentives based on individual performance

Focus on the management of core talents based on overall performance incentives

investment of industrial enterprises have continued to grow, and large-scale enterprises with international competitiveness like Haier, CIMC, Lenovo, Huawei, and ZTE have emerged. However, the rapid improvement of manufacturing capacity has not created the development of innovation and innovation advantages of Chinese enterprises. The core technologies of Chinese enterprises participating in global competitions are still heavily dependent on foreign imports. The regional economy still relies on the cost driven by the demographic dividend, and the corporate profit rate is not high [54]. The substantial increase in manufacturing capacity and the development achievements of manufacturing country have not enabled Chinese enterprises to form core competences and innovation capabilities, and the rapid growth of R&D investment has not led to rapid growth of core competence [55]. Therefore, building the core competence of the enterprise has become the key to improving the level of innovation, participating in international competition, and enhancing global competitive advantage of Chinese enterprises. The core competence building guides the whole process of “opportunity recognition—creative formation—creative development—commercialization” embedded in enterprise innovation, and it provides the basis for enterprises to gain control over innovation income [56]. This kind of competence building not only emphasizes specific organizational resources, but also covers the effective combination and interaction of multi-level elements such as strategy, organization and operation to achieve value creation [57–59]. Among them, the core technology and technical capability

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are the basis of the core competence of the enterprise. Enterprises with core technology can control the innovation income by means of patents, technical secrets and other protection measures. At the same time, it can drive enterprises to move to the high end of the value chain to obtain excess returns of innovation [56]. For example, Wan Yan, the pioneer of China’s VCD industry, lost the competition for innovation under the conditions of channel, brand and manufacturing due to the lack of the core technology of decoder chip [60]. Technological capability has thus become a key element in core competence. In essence, technical capability refers to the ability of an enterprise to allocate various technical resources [61]. The technical capability essentially refers to the knowledge and information elements related to the activities of the actors [62], emphasizing the transformation of resource inputs into outputs in the form of tools [63], explicit knowledge and implicit skills, while the capability essentially emphasizes a way to combine skills and resources [64]. As the focus of the core competence of the enterprise, the technical capability plays a decisive role in the improvement of the competitive advantage of the enterprise. Different scholars define the connotation of the enterprise’s technical capability from different perspectives, as shown in Table 4.6. On the basis of discriminating the connotation of the technical capability of enterprises, the research focuses on the composition of technological capabilities of enterprises. The relevant summaries are respectively shown in Tables 4.7 and 4.8.

4.3.2 Core Competency Management Support—Non-technical Elements [39] In addition to the focus of the company’s core technology and technical capabilities, core competencies and their management rely on non-technical elements to form and support, including strategic management based on core competencies, human resources management based on core competencies, and knowledge management based on core competencies. 1. Strategic Management Based on Core Competencies Increased competition and accelerated technological development have led companies to find new ways to gain lasting competitive advantage. Many companies no longer rely entirely on traditional corporate strategies based on the external environment (analyzing the markets and competitors that companies face). Instead, they are basing their strategy on core competencies, taking into account the current and future internal resources of the enterprise. Companies based on core competencies skip the end products and services to understand the basic skills and know-how that make them more capable than their opponents. They focus more on their investment priorities and business priorities, rather than on quick success and short-term economic benefits. In this context, companies often focus on “combination of market and core

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Table 4.6 Definition of the connotation of enterprise technical capabilities Definition perspective

Description and explanation

The content of technology and the activity of technical capability development

Technical capability includes the ability to search for possible technologies, select appropriate technologies, specialize in specific technologies, adapt technologies based on business needs, develop new uses of technologies, and institutionalize these activities [65]

The content of technology and the activity of technical capability development

Enterprise technical capabilities are measured by the components of technology, including production tools and equipment, production skills and experience, information and production arrangements and organization of four units [67]

Technical capability is a combination of technology learning, creativity and search ability, it can be expressed as a chain process of searching technology—learning technology—creating technology, which emphasizes the important role of learning process and learning ability in technology improvement [66]

Technical capability consists of the ability to develop technology and the ability to commercialize technology. According to the source of the capabilities, it can be divided into internal R&D capabilities and technology mosaic capabilities. The former represents the technological innovation capability of the enterprise and the latter represents the technological accumulation capability of the enterprise [68] Enterprise technical capabilities are attached to the internal personnel, technical equipment systems, technical information and organizational management elements, and are reflected in the sum of all endogenous knowledge stocks of each element; Technical capability is the sum of the abilities to identify, select, absorb, utilize, transform, and innovate technology [69]

Internal and external resource utilization and resource conversion

Enterprise technical capability includes both the ability of companies to use R&D investment to create knowledge and the ability to absorb external knowledge, and it involves the ability of companies to understand the value of information and apply it to commercial purposes [33] The key of enterprise technical capability lies in the coordination of technology and related resources Enterprise technical capability can be divided into external integration capability and internal integration capability from the perspective of dynamic capability. The former refers to the ability of enterprises to identify and integrate knowledge outside the enterprise; the latter mainly emphasizes the ability of enterprises to adapt to technical changes, and internal technical communication networks, etc. [70]

Knowledge and The technical capability is mainly reflected in the human resources intellectual capital structure of the special technical personnel (engineering technicians, researchers, designers, production and maintenance personnel, professional technical consultants, etc.) [65] The key of technical capability lies in its transfer, which must rely on the accumulation of experience and expertise of key personnel (such as scientists, engineers, equipment operators) [71] (continued)

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Table 4.6 (continued) Definition perspective

Description and explanation

Dynamic characteristics and evolutionary attributes of technological innovation capability

Technical capability is an ability for companies to effectively use technical knowledge to imitate and absorb existing technologies, create new technologies, and develop new products and processes to adapt to changing economic conditions Technical capability is the ability of an enterprise to effectively use existing knowledge through the process of technology introduction, digestion, absorption, improvement and creation in the process of technological innovation, while continuously generating new knowledge [72]

Source Mei [73]

competencies” and “comparison of core knowledge capabilities and core operational capabilities” in the strategic management process based on core competencies. Hamel and Prahalad focused on the combination of market and core competencies when proposing the concept of core competencies, and they constructed an analysis matrix that combines market and core competencies, as shown in Fig. 4.5 [75]. In Fig. 4.5, when the company is in the position of filling the vacancy, the core competence and market are both existing. The question to be answered is how to better rely on the core competence already possessed to improve the position of the enterprise in the existing market. When the company is in the lead, the market is existing, but at this time the company has not yet mastered the corresponding core capabilities and needs to clearly define what core capabilities to protect and expand its market position. The new core capabilities will replace the current core competence; when a company is in a blank space, the company already has the corresponding core capabilities, but the market is new. At this time, the company must creatively reconfigure or combine the existing core capabilities to provide new products or services to the market; when the company is in a huge opportunity, the core competence and market are new. At this time, the enterprise should consider what kind of core competence to develop to participate in the competition of the future market. Core competencies can be divided into core knowledge capabilities and core operational capabilities [1]. The core knowledge ability constitutes the work content and subjective conditions of the enterprise. For example, 3M’s core knowledge capabilities are technical knowledge of corrosives and adhesives; Kodak’s core knowledge capabilities are picture imaging technology. Core operational capabilities are the regular ability for many companies to succeed. Some companies have unparalleled efficiency in a core business process, such as launching new products to the market. Core operational capabilities may also be useful techniques such as information technology that captures details of customers. For example, HP’s core operational capabilities are the ability to quickly introduce new products; Wal-Mart’s core operational capabilities are logistics management. Comparing a company’s and its competitors’ core knowledge capabilities and core operational capabilities, as shown in Fig. 4.6,

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Table 4.7 Analysis and discussion on the composition of enterprise technical capability Source and year of study

Composition of technical capabilities

United Nations Industrial Development Organization (1968)

Technical capability includes the ability to acquire technology, the ability to provide information support and network support, the ability to adapt technology, basic research capability and training capability

Fransman (1984)

Technical capability includes the ability to select technology, the ability to improve technology, the ability to localize technology, the ability to incrementally innovate imported technologies, the ability to make major innovations in the introduction of technology based on the original technical capability, and the ability to conduct strategic planning to improve the technical capability of the enterprise

Dore (1984)

Technical capability includes technical search ability, technical learning ability, and technological innovation ability

Desai (1984)

Technical capability includes the ability to acquire technology, the ability to operate, the ability to replicate and expand, and the ability to innovate

UNESCAP (1991)

Technical capability includes employee knowledge and skills systems, material technology systems, management systems, corporate values

World Bank (1993)

Technical capability includes production ability, investment ability, and innovation ability

Westphal (1981)

Technical capability includes the ability to organize, ability to adapt, ability to innovate, ability to acquire technology and information

Muller (1986) Technical capability includes the ability to develop product, ability to improve production technology, ability to reserve, ability to organize Wei Jiang and Xu Qingrui (the year 1995)

Technical capability includes the ability to introduce technology and information, the ability to learn technology, the ability to generate new technologies and knowledge, and the ability to achieve technological innovation to create economic benefits

Mao Ningying (2009)

Technical capability includes: horizontal dimension—technology investment capability, production organization capability, product core competence and process capability; vertical dimension—technology full imitation ability, creative imitation ability and technological innovation ability

Source Zhao X [74]

will yield some valuable information to know exactly how the company will gain the competitive advantage. In Fig. 4.6, Company 1 lacks both knowledge and operational capabilities; company 2 has a high level of technical knowledge and low operational capability, which means that it may be inefficient in bringing goods and services to market, or insufficient in maintaining product quality and consistency. Therefore, Company 2 is subject to its relatively low operational capacity; company 3 is stronger in terms of knowledge and operational capabilities, and slightly less knowledgeable than company 2, but has a stronger ability to sell goods and services.

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Table 4.8 Measurement description and summary of enterprise technical capability Source and year of Research focus and background description study

Measurement of technical capability

Babu and Ganesh [76]

The study focuses on the situation of less developed countries, focusing on the technological capabilities of enterprises in less developed countries, expand with the capital goods industry in India as an example

Key measurement indicators focus on technology acquisition, manufacturing and assembly, project engineering, production and process design

Schoenecker and Swanson [77]

The research focuses on the core construct of corporate technology capability, expanding with the US medical, chemical, and electronics industries as the research context

The main measurement indicators focus on the scale of technical capability and the quality of technical capability

Cho and Lee [78]

Studies the core constructs of network capability focuses on technology, expanding with the Korean semiconductor industry as the research context

The main measurement indicators focus on the regional network capability, domestic network capability, and global network capability of the enterprise technology’s network capability

Jonker et al. [79]

The research focuses on the two concepts of technical particularity and technical ability, expanding with the Indonesian paper industry as the research context

The main measurement indicators focus on the technical efforts of the enterprise (investment in the learning process) and the technical capability of the enterprise (technical knowledge and skills in the learning process)

Source Park et al. [65]

Need to develop Core competence

Fig. 4.5 Market and core capabilities portfolio analysis framework

Strive for the lead

Current

Huge opportunity

Fill vacancy

Blank

Current

Newly appear Market

2. Human Resource Management Based on Core Competence Human resource management based on core competencies is mainly manifested in three aspects. One is to attract talents with the goal of strengthening corporate

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Final goal Knowledge ability

Sustainable advantage

Operational ability

Fig. 4.6 Comparison of core knowledge capabilities and core operational capabilities

capabilities. Attracting talents is one of the important means for enterprises to cultivate their own abilities, and it can make up for the shortcomings of enterprises in a short period of time. Through the analysis of the ability selection stage, the enterprise finds the enterprise capability that needs to be developed and improved. The criterion when attracting talents is whether they can promote the development of enterprise capabilities. The second aspect is to strengthen the management of high-level talents. Although the core competencies do not exist in any single person, the core competencies of the enterprise are highly dependent on the human resources of the enterprise, because the employees of the enterprise partially act as the bearers of the core competencies. Internal employees can better understand what core capabilities a company has, how valuable it is, and how likely it is to use it. Enterprises should especially strengthen the management of high-level talents, actively adopt various incentives, create a good working environment for high-level talents, and give full play to their role to prevent high-level talents from leaving the company. This is because on the one hand, highlevel talents are the most important force for companies to explore new core competencies; on the other hand, if high-level talents leave the company and compete in the competitive enterprise, because they have more content in the core competence of the enterprise, the time for the competitor to follow suit will be greatly shortened and the difficulty will be greatly reduced, thus bringing the enterprise negative effect. The third aspect is to build incentives based on team and knowledge contributions. In the past, the incentives of enterprises were based on personal performance, which hindered cooperation and communication between people. Cooperation and communication are necessary in today’s increasingly complex technology, and it can produce great synergy. Therefore, based on the performance of the team and the contribution of the individual to the knowledge of the company, the promotion of

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cooperation and communication between people can promote the development of enterprise capabilities. 3. Knowledge Management Based on Core Competence The rise of knowledge management was accompanied by the arrival of the era of knowledge economy. In the era of knowledge economy, knowledge has become the most important resource for economic development. Laurence Prusak points out that the only thing that can give a company a competitive advantage is what it knows, how to use what it has and how fast it can acquire new knowledge. Enterprise knowledge management is the capture of a group’s collective knowledge and skills, whether they exist in the database, printed on paper or in people’s minds, and then enterprise distributes this knowledge and skills to any process that can help the company achieve maximum output. The enterprise knowledge management process under the guidance of the core competency objectives is shown in Fig. 4.7. Knowledge management begins with a search for external knowledge. In the era of information explosion, we are often surrounded by various kinds of information, but we have not been exposed to the knowledge that is useful to us, so it is necessary to conduct a comprehensive search of external knowledge. After getting the external knowledge, it is not directly stored in the enterprise knowledge base, but through a filtering system. Choose what is really useful for the company’s current or future development, based on whether it is conducive to the development of the core competencies of the company. After filtering, the useful knowledge is stored in the enterprise’s knowledge base. The use of knowledge begins with the sharing of knowledge, giving employees a convenient access to knowledge that is helpful to their work. Applying this knowledge to production practice, employees improve their work efficiency on the one hand, and increase knowledge gains on the other hand and gain empirical knowledge (tacit knowledge) in knowledge application. Tacit knowledge exists in the minds of employees. In order to expand the scope of tacit knowledge, it is necessary to make it explicit through capture and coding and apply this result at the enterprise level. Instead of capturing all the knowledge, companies need to capture knowledge that is useful for building core competencies based on their core competencies.

Gain external knowledge

Filter

Storage

Core competency goal

External search

Knowledge base

Shared

Coding

Application

Capture

Gain tacit knowledge

Fig. 4.7 Enterprise knowledge management process under the guidance of core competency objectives

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4.4 Duality of Core Competence [80] 4.4.1 Basic Characteristics of Core Competence The core competence of the company was proposed by Hamel and Prahalad in 1990. Their core competencies are well-known arguments for the source of competitive advantage [16] and have far-reaching implications for corporate strategic management and technological innovation management theory. Leonard-Barton uses the concept of core competencies to study the company’s product development, suggesting that core competencies and core rigidity are two sides of a coin [14], and he defines core competencies as a collection of knowledge that differentiates and provides competitive advantage. On the one hand, core competencies can enhance R&D activities and on the other, when new R&D projects have new content for the original knowledge set, the original core competencies can also hinder R&D activities, that is, have core rigidity, so that the company ignores or underestimates important new capabilities. The limitations of core competencies have led to the development and attention of another important branch of competence theory: dynamic competence theory. The basic assumption of dynamic capability theory is that the dynamic capabilities of an organization can adapt it to changes in the environment, thereby achieving a lasting competitive advantage. The dynamic capabilities strategic framework highlights two key aspects that have been overlooked in previous strategic perspectives: “dynamic” refers to the ability of an enterprise to continuously update its capabilities in order to adapt to the changing market environment; “capability” means that strategic management plays a key role in updating the company’s own capabilities (integrating and reorganizing internal and external organizational skills and resources) to meet environmental change requirements.

4.4.2 The Paradox of Enterprise Core Competence in Dynamic Environment: Core Competence and Core Rigidity With the advent of the era of knowledge economy and the application of the Internet in economics, politics, and life, the competition rules of many industries have been changed. For example, in the information industry, the proportion of software is increasing, making the marginal cost of many products close to zero. This changes the production and cost curve in traditional economics, and directly affects the competitive structure of the market. At this time, enterprises often face a dilemma: on the one hand, in order to win the advantage, the existing capabilities should be continuously strengthened, because the superior ability can create a set of advantages that are characteristic, differentiated and difficult to imitate [4, 5]. On the other hand, while

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companies are doing their utmost to tap and exploit existing resources and capabilities, the actions of competitors, the changes in the environment and the emergence of new technologies may make the excellent ability that the company carefully cultivates and constructs become worthless in the market overnight. One of the reasons for the above dilemma is the individual’s cognitive limitations and the constraints of information and ability. Enterprises can only use simple decision rules and procedures to guide their behavior, that is, limited rational decision-making. In limited rational decision-making, since resource accumulation has the irreversibility of time path, once the key “choice” decision is made, the investment of the enterprise’s future resources and capabilities will be selected. Resources and capabilities will be accumulated and developed in the established direction. Resources and capabilities are often associated with complex historical and insignificant small decisions of the enterprise over time, so we can also infer that resources and capabilities are path dependent. In the long-term process of resource accumulation, the characteristics of path dependence must be presented, that is, past resources have great influence on current and future resources. The rewards of the existing resource advantages determine the direction of resource accumulation. There is a positive feedback mechanism in a stable environment. When the increase in returns occurs, the accumulation of resources is not only consolidated and supported, but also on the basis of this, it is closely linked to the development of a benign cycle. Once the external environment changes, the reward increasing mechanism will prevent it from being interfered by external factors or replaced by other programs. The accumulation of resources is moving towards non-performance, and it is getting deeper and deeper, and eventually “locking” in some inefficiency. The explanation of economics for the above dilemma is that there is a paradox in the management of enterprise competence: the core competence is also the core stiffness. In other words, if we define the core competence of the enterprise as the source of strength of the enterprise, then it is also a potential cause of the disadvantage, and the two are accompanied. On the one hand, the heterogeneity, value, and non-replicability of core competencies determine that the business activities corresponding to core competencies may achieve high economic returns, and entrepreneurs thus need to achieve the heterogeneity of core competencies through continuous investment in core competencies, thereby gaining competitive advantage [81]. On the other hand, when a company tries its best to tap resources to build core competencies, changes in the competitive environment and changes in external contexts may lead to the exhaustion and abandonment of core capabilities, and the core capabilities cannot effectively adapt to the needs of new environmental conditions for the improvement of competitive advantage. This translates into a capability lock-in, or a behavior rigidity, that forms a highly path-dependent decision of the company’s current and future action decisions for past historical activities and historical experience [82–85]. Therefore, the core ability brings advantages to the enterprise while also bringing hidden dangers. In the case of separating the enterprise from the environment, the contribution of core competence to competitive advantage has an incremental-decreasing effect. Core competencies may be able to resist the imitation

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of competitors in the short term, but it is difficult to avoid the impact of rapid market changes, and market uncertainty will ruin the core capabilities of enterprises.

4.4.3 Basic Form of Core Rigidity It can be seen from the analysis of feature attributes based on core competence that core competence has duality, that is, core competence promotes the improvement of organizational competitive advantage and may lead to the path dependence of capability locking and organizational behavior, that is, core rigidity. Often, a stable external environment provides the basic conditions for the organization’s resources to be built to achieve core competencies. The externally variable environment may lead to the path dependence of the core competence of the enterprise, which leads to core rigidity, including the structural inertia [86] caused by the organizational structure and the resource commitment [87] caused by the continuous investment of organizational resources. According to the attribute characteristics of the core rigidity, the study divides the core rigidity into paradigm rigidity and inert rigidity. The former refers to the rigidity of the core capabilities caused by the mutation of specific technologies and the incompatibility of the environment, which leads to the decline of business performance and the loss of competitive advantage; the latter refers to the core competence of the enterprise on the trajectory of certain technological evolution. Because of the limitation of enterprise resources, it cannot keep up with the evolution speed of the technology trajectory, which leads to the decline of the enterprise’s ability to adapt to the environment, and then the decline of corporate income and competition level [81]. Figure 4.8 describes the two basic forms of core rigidity—paradigm rigidity and inert rigidity and their mutual evolution. Based on Fig. 4.8, the development of core capabilities and the evolution of technology show a certain correlation, which basically conforms to the evolution law of S-shaped curves. In general, core competencies are random and spontaneous at the beginning of construction, and often experience a slow growth process of gestation and cultivation. With the investment of enterprise resources, the core capability is accelerated, and the increase of corporate excess returns caused by the improvement of core competence is promoted. The evolution of core competence is also manifested as a stable growth and promotion mechanism. Then, as core capabilities are further strengthened, core competencies may gradually lead to a core rigid management dilemma. For the development path of the original technology trajectory, the core ability may cause inertia rigidity, which leads to the inability to keep up with the development of the technology, thus causing the decline of the business performance in a certain stage of capacity enhancement. For external technological changes and environmental changes, the path dependence of core capabilities triggers their own incompatibility with external changes, leading to the emergence of paradigm rigidity. At this time, the key to improving the business performance and competitive advantage of the enterprise is to promote the development of core capabilities along the new S-shaped curve, and thus enter the leaping

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4 Enterprise Innovation Ecosystem Based on Core Competence Core rigidity (capability rigidity) appears

Core competence and core rigidity Declining core capacity gains

Capability overlocking benefits

Inert rigid possibility area Declining core capacity gains Capacity enhancement Core competency performance time

Paradigm rigid possibility area

Fig. 4.8 Basic form and evolution of core rigidity. Source Zou and Xu [81]

trajectory that is compatible with the external technological changes, and then enter a new life cycle evolution.

4.5 Construction of Enterprise Innovation Ecosystem Framework Based on Core Competence 4.5.1 Core Competence Paradox and Open Paradox Focusing on the resource input and development of the core competence of the enterprise, the core capability can effectively enhance the level of innovation and competitive advantage of the enterprise. However, the continuous increase of investment will lead to the locking of the ability of the enterprise and the rigidity of the behavior, thereby gradually forming the path dependence of enterprise resources and behaviors on past experience [82–86]. Reduce the ability of enterprises to adapt to changes in external technology environment and market environment and form a negative effect on competition of enterprises. Based on the analysis in Sect. 4.4, how to build the core competence of the enterprise, balance the positive ability of the core competence to the competitive advantage, and the core rigidity caused by the solidification and locking of the core capability become the core issue of the internal organizational management of the enterprise. Research calls this the core competence paradox [14]. Therefore, breaking the limits of organizational boundaries, seeking the interaction between enterprise organizations and the external environment, and building a healthy enterprise organization innovation ecosystem have become the direction of exploring and solving the core competence paradox. A large number of studies have explored the core issues of external cooperation [88], collaborative innovation [89], and innovation ecosystem creation [90, 91] under the open innovation paradigm173 . It is believed that open innovation plays an important role in absorbing external knowledge elements and innovation sources

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[92, 93], connecting external partners to acquire complementary resources [94, 95] and achieving value creation [96, 97], which significantly promotes the improvement of enterprise innovation performance and value output, thus strengthening the enterprise’s competitive advantage [98, 99]. However, over-emphasizing the need for open innovation and the establishment of ecosystems has led to the neglect of the core resources and core competencies of the focus enterprises, while at the same time making it difficult to achieve their own specific control over core resources. The theft and imitation of core assets triggered by openness has led to the issue of “appropriability” under the open innovation paradigm becoming the focus of future research [100]. The open public paradox has received attention that innovative ideas and inventions need to be open, while innovative commercialization processes require the protection of core assets [101]. The study of specificity stems from the discussion of two branches. The first is the concept of specificity proposed by scholars represented by Teece. It is considered that the specificity of technological innovation of enterprises is different from the protection policy of intellectual property rights. The ability of the innovator is limited without the horizontal integration of the firm and the contractual constraints of competitors [102, 103]. The discussion of the open innovation research paradigm needs to focus on the externalization of corporate intellectual property rights and the open innovation activities under the conditions of strong corporate specificity [104–106]. The second is von Hipple’s critique of the firm’s strong specificity. It believes that strong specialization is the drag of the synergy and accumulation of the innovation process, and enterprises will therefore reduce the social benefits brought by open innovation [107, 108]. The situation of free sharing and free disclosure is more conducive to the creation of inventions than the formal situation of intellectual property protection [109–111]. Based on the two traceability of the special attribute research, Henkel further confirmed the suppression of innovation by the strong special attribute strategy and proposed the open innovation paradigm of selective disclosure, that is, the enterprise partially promotes the open innovation strategy in the process of internal resource externalization and outward open innovation, or it is called a limited open innovation strategy [112, 113]. Laursen and Salter have empirically demonstrated the importance of moderate openness for corporate performance and competitive advantage [114]. By using survey data from 2,931 UK manufacturing companies, it is confirmed that companies implementing weak-attribute strategies are more inclined to strengthen informal external innovation resource search. Companies that implement strong proprietary strategies will only increase the breadth of collaborative innovation among external partners when they form formal partnerships with competitors. They call it an open paradox that the balance and compromise between the breadth of external innovation and the exclusive strategy of deep reinforcement and innovative resource protection [101]. Thus, open innovation has a compromise and balance between openness and resourcespecific protection. Under the background of the excessive openness that is harmful to the improvement of corporate performance and competitive advantage, enterprises should not neglect the construction of internal core competence while implementing open innovation and building an innovative ecosystem. Only by building a strong internal core capability, the core competence can have basic attributes such as

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4 Enterprise Innovation Ecosystem Based on Core Competence Internal organization

Core competence paradox: Core competence vs core rigidity

Solutions: Seeking open and innovative ecosystem construction

Outside the organization

Internal and external balance and coordination: Enterprise innovation ecosystem based on core competence

Open paradox: Open innovation VS resource protection (specialized) Solutions: Enhance the specificity and nonimitation of core competence

Fig. 4.9 Internal and external balance and coordination strategies

imitation, irreplaceability, and value. Open innovation can effectively guarantee the exclusiveness of the core resources of the enterprise and the acquisition of external innovation sources. Therefore, open innovation based on core competence, or enterprise innovation ecosystem construction based on core competence, is an effective strategy to balance and coordinate the internal and external innovation elements of enterprises, to deal with the paradox of core competence and the open paradox of enterprise internal orientation, as shown in Fig. 4.9. The construction of an enterprise innovation ecosystem based on core competencies will help enterprises to truly realize the integration of resources and the dynamic matching of internal and external innovations, so as to obtain a sustainable competitive advantage [115, 116].

4.5.2 Research on the Evolution of Enterprise Innovation Ecosystem Based on Core Competence [117] 1. Resource Base View The resource-based view emerged in the 1980s, which holds that companies can be seen as an organic combination of resources. Penrose first proposed the concept of “resources”. The company is considered to be a collection of “production resources”, including material resources and human resources [22]. Harvard University’s Colis and Montgomery divide corporate resources into tangible assets, intangible assets, and organizational capabilities [118]. Wernerfelt believes that resources refer to “permanent assets (tangible and intangible) owned by companies, such as brands, internal technical knowledge, skilled employees, trade links, machines, efficient procedures, capital, etc.” [4]. Barney defines enterprise resources as “all assets, capabilities, organizational processes, business characteristics, information, knowledge, etc. that are controlled by an enterprise and enable it to develop and implement strategies to improve efficiency and effectiveness [5].” Barney’s research on the key characteristics of resources is the most representative and has become the basic framework of resource theory. He believes that resources

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that produce a sustainable competitive advantage must have four attributes (VRIN), i.e. value, rarity, imperfectly imitable, and non-substitutable [16]. Peteraf believes that there are differences in resource conditions and competency conditions between companies, and some companies gain competitive advantage because they have more productive resources; resources that can be used to build a company’s continued competitive advantage must have four characteristics: heterogeneity, ex-post limits to competition, imperfect mobility, and pre-competitive constraints (ex-ante limits to competition) [119]. The enterprise resource base view believes that the competitiveness of an enterprise is based on the special resources, assets and skills owned by the enterprise, and maximizing the utilization of these resources can bring a competitive advantage. However, only resource advantages are not enough, and companies need to have special capabilities to make better use of these resources [22]. Prahalad and Hamel proposed the term “core competence”. Their definition of core competencies is, “the accumulation of knowledge of the organization, especially how to coordinate a variety of production skills and how to integrate the knowledge of multiple technology flows”. It is also believed that the three criteria for identifying core competencies are the possibility of providing access to many product markets, providing significant value to customers of end products, and making it difficult for competitors to imitate [16]. Leonard-Barton defines core competencies as “the collection of knowledge within the enterprise, including the knowledge and skills of employees, technical systems, management systems and value norms, with the main role of coordinating various production skills and integrating different technologies [14]”. Although the resource-based view emphasizes that the resources and capabilities of the enterprise are the source of the company’s competitive advantage, not all resources and capabilities can be the source of the competitive advantage of the enterprise. The unique resources and capabilities of the enterprise can ensure the company’s sustainable competitive advantage. The enterprise innovation ecosystem is constructed under the open innovation paradigm based on this relatively static resource-based view, that is, the enterprise must make full use of the innovation sources outside the organization. At the same time, the integration of internal and external creativity, knowledge and resources forms the core competence of the organization and promotes the innovation performance of the organization. 2. Dynamic Capability Theory The resource-based view holds that ultimately all profits can be attributed to the ownership of scarce resources. Economists interpret these profits as rent accumulations of resources in a state of shortage supply, and they also strictly distinguish between two types of economic rents. One is Ricardo rent or scarcity rent. Ricardo rent stems from the scarcity of resources. The other is Schumpeter rent or innovative rent. Schumpeter rents are earned by innovators, usually during the introduction and diffusion of innovation. The resource-based view emphasizes the importance of Ricardo rent. The resource-based view expands the understanding of organizational performance and strategic management. However, some scholars question the

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validity of the resource-based view [120, 121]. The resource-based view is based on a static perspective, and it is believed that key resources can guarantee the company’s excess rent (Ricardo rent) and thus obtain a lasting competitive advantage. This cannot be established in a turbulent, unknown environment, so competitive advantage is unreliable in a dynamic market environment [121, 122]. How to acquire and maintain the competitive advantage of enterprises in a dynamic environment has become the focus of scholars’ research. The basic logic of dynamic capability theory is that the resource-based view is not enough to explain the acquisition of competitive advantage in a rapidly changing and unpredictable market environment. At the same time, core competencies are subject to core rigidity constraints, so organizations need to compensate with dynamic capabilities that can be contingent. Leonard-Barton pointed out that once the core competencies of an enterprise are formed, core rigidity problems often arise. In a rapidly changing environment, core capabilities often cannot be changed. At this time, the original core capabilities of the enterprise cannot bring a sustainable competitive advantage to the enterprise, but it will hinder the competitive advantage of the enterprise [14]. Dynamic capabilities are the ability of companies to consolidate, build, and reconfigure internal and external capabilities to respond to rapidly changing environments, and they have become a source of continued competitive advantage for companies [123]. Dynamic capability requires that the resources and capabilities of enterprises should be adjusted with the change of external environment, thus making up the defect of the view of resource base. Dynamic capabilities are intrinsically linked to the dynamics of the market. Schumpeter rent comes from innovation. As time goes by, innovation will soon be imitated. When resource-based business theory was first proposed, people immediately focused on Ricardo rent and resources that could generate huge value over the long term. However, people quickly discovered that these resources are significant, but they are actually very scarce. More resources and the competitive advantage they generate are innovative resources that bring Schumpeter rents. Many companies create competitive advantages through continuous innovation and endless struggle. Therefore, companies can only gain competitive advantage in a rapidly changing environment by creatively integrating, building and reconfiguring resources or capabilities to obtain innovation-based economic rents, namely Schumpeter rents. The resource-based view follows the strategic logic of leverage, and the key to building a competitive advantage lies in accumulating resources with VRIN attributes. On this basis, enterprises can form a control and monopoly on the market, and a relatively favorable market position can bring the so-called “Ricardo rent” to the enterprise. However, the dynamic capability theory follows the strategic logic of change and believes that leveraging the resources accumulated in the past does not necessarily give enterprises a sustainable competitive advantage, because heterogeneous resources that are compatible with the past environment may not be able to meet new environmental requirements. Companies must demonstrate a timely response to the outside world, rapid and flexible product innovation, and a high

4.5 Construction of Enterprise Innovation Ecosystem Framework Based … Fig. 4.10 The rent perspective of the resource-based view and the dynamic capability theory

Resource base view

Ricardo rent

Position

p r o ce s s

167

Dynamic capability theory

Schumpeter rent

path

Dynamic ability

Fig. 4.11 Three dimensions of dynamic capabilities

degree of organizational flexibility. Under changing market conditions, continuous innovation and change have become the key to winning the competition. Reflecting in organizational capabilities is the dynamic adjustment of resources and their structure. Thus, the economic rent based on organizational capabilities is expressed as “Schumpeter rent”. The difference between the two is shown in Fig. 4.10. Teece et al. define dynamic capabilities as the ability of an enterprise to create, integrate, and reconfigure capabilities within and outside the enterprise to adapt to a rapidly changing environment [123]. They combine the business model of evolutionary economics with the resource-based view to propose a “dynamic capability” framework. This framework is based on two key aspects, dynamics and capabilities, and further illustrates dynamic capabilities from the three dimensions of potential, process, and path, as shown in Fig. 4.11 [123]. (1) Position. The position refers to the situation inside and outside the enterprise. Intrinsic position refers to the resources available to the enterprise, such as financial assets, technical assets, reputation assets, and structural assets. External position refers to the clear market structure assets of the enterprise. The current position of the enterprise determines the scope of decision that the enterprise can achieve. (2) Process. Process is the key to the concept of capability and can be divided into static and dynamic parts. On the one hand, the process focuses on coordinating and organizing the available resources, which is a static component of the process. On the other hand, process refers to organizational learning and resource reconfiguration, which is a dynamic component of the process that is considered to be a guarantee for organizations to achieve lasting adaptation and organizational change. (3) Path. Paths can be divided into “path dependencies” and “technical opportunities”. “Technology opportunity” is a function of the spread of basic

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science, popularization and breakthrough speed of new technology, but it is not completely exogenous to industrial activities. It partly determines the speed and space of industrial activities and has corporate characteristics. Because enterprise organizational capabilities contain a large amount of specific tacit knowledge, it is difficult for enterprise organizational capabilities to imitate and replicate. This tacit knowledge is embedded in the internal operation of the enterprise and is determined by the location and process, which forms the competitive advantage of the enterprise. Dynamic capabilities reflect the ability of companies to gain innovative competitive advantage given path dependence and market potential. Therefore, under the open innovation model, enterprises must dynamically reconstruct and integrate the resources and capabilities of the organization according to changes in the market and external resources and construct the dynamic capabilities of the organization. 3. Open Innovation Framework from the Perspective of Dynamic Capabilities Since the 1980s, with the rapid development of science and technology and the advancement of globalization, producers must continue to carry out innovative activities to maintain a competitive advantage. A single vertical integration can no longer meet all the knowledge needed for continuous innovation activities, and any company with strong technical strength cannot create all the knowledge needed for technological innovation from within. This requires companies to interact with external resources and knowledge in the process of innovation. Chesbrough proposed an open innovation model [98]. Open innovation means that valuable ideas can be obtained both internally and externally, and the commercialization path can be carried out from within the company or from outside the company. He described the basic characteristics of open innovation: through cooperation, all smart people inside and outside the company work for us. External R&D can create tremendous value, so we should share it. We don’t just rely on our own research to make a profit; building a model that leverages all research results is more important than just bringing your product to market. If we can make full use of all the good ideas inside and outside the company, we will certainly achieve even greater results. The open innovation framework for dynamic capabilities is shown in Fig. 4.12. (1) Position: existing resources and knowledge. Existing resources and knowledge refer to heterogeneous assets or knowledge that an enterprise already possesses

Fig. 4.12 Dynamic capabilities in open innovation

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and distinguishes itself from other companies, including unique assets, knowledge or capabilities. These knowledge or abilities are unique to the enterprise and difficult to imitate, so they can generate economic returns and competitive advantages. Under the open innovation model, the position of the enterprise depends on the existing resources and knowledge of the organization, and this mainly includes two parts: the existing knowledge within the enterprise and the external innovation source. The external innovation source of the enterprise under the open innovation model is shown in Fig. 4.13. As can be seen from Fig. 4.13, open innovation emphasizes the importance of external creativity and external marketization channels, emphasizing the importance of technical cooperation. In the open innovation model, enterprise technology innovation is no longer a simple linear process, but a complex feedback mechanism. Companies must interact with other organizations (including users, suppliers, competitors, non-related companies, universities, research institutions, consulting companies, governments, etc.) to carry out innovation activities. Companies need to integrate internal and external resources and knowledge to increase the efficiency of the innovation process. With the passage of time, the development of science and technology and the evolution of competition, the importance and role of each external innovation source for the organization

Competitors

Other companies

Suppliers

R & D department

The government

Users Production department

Sales department

Research institute

Technical intermediaries Colleges and universities

Fig. 4.13 External innovation sources of enterprises under the open innovation model. Source Chen and Chen [124]

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is gradually changing. In order to allow external innovation sources to consistently match the knowledge and capabilities within the organization, organizations need to update and select external key resources and knowledge in a timely manner to lay the foundation for sustained competitive advantage and innovation performance. Therefore, the organization’s evaluation and selection of external innovation sources are important measures and ways to ensure this optimal match. (2) Process: The flow of knowledge. Knowledge can be divided into explicit knowledge and tacit knowledge. Among them, explicit knowledge is system-encoded information, which can be spread between organizations. It has the characteristics of linguistic, structural/semi-structural, objective, rational, orderly and coding. Absorptive capacity is a key factor affecting companies’ access to explicit knowledge. The tacit knowledge is based on experience. It is difficult to spread even within the organization, so it is difficult to copy and imitate. It is subjective, emotional, current and analog. It enables companies to use scale economies both internally and externally. Nonaka proposes a dynamic model of knowledge creation and is used to describe the process of knowledge flow. This model summarizes the four transformation processes between knowledge, as follows: ➀ the tacit knowledge is transformed into explicit knowledge, that is, externalization or coding of knowledge, which mainly summarizes the tacit knowledge existing in the human brain and expresses it in a coded manner; ➁ explicit knowledge is transformed into explicit knowledge (knowledge diffusion), that is, the combination of knowledge, mainly by combining existing explicit knowledge to form new explicit knowledge; ➂ Explicit knowledge is transformed into tacit knowledge, that is, internalization of knowledge, mainly through the use of explicit knowledge in the work of people; ➃ The tacit knowledge is transformed into tacit knowledge (knowledge value-added), that is, the socialization of knowledge, mainly through the corporate culture atmosphere and effective knowledge transfer environment to realize. According to the above analysis, the knowledge flow process (referred to as the SECI process) under the open innovation mode can be described, as shown in Fig. 4.14. As shown in Fig. 4.14, the knowledge from the external innovation source enters the organization under the open innovation model. The four processes of socialization, externalization, internalization and combination are absorbed and integrated into the internal basic knowledge. Similarly, the knowledge within the organization flows out of the organization through transformation, reaching external innovation sources and knowledge sources such as suppliers, users, research and development institutions, universities, technology agencies, and governments. In addition, organizations also need to adjust the direction and intensity of knowledge and resources in a timely manner when conducting open innovations and selecting external cooperation partners according to the development of the environment and the competitive situation. (3) Path: Updates and upgrades of resources and capabilities. As the environment changes and competition continues and the product life cycle evolves, the

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Competitors

Other companies

The government

Suppliers

Basic knowledge

Users

Research institute

Technical intermediaries

Colleges and universities

Fig. 4.14 Knowledge flow in open innovation mode

company’s original knowledge, resources and capabilities to maintain competitive advantage will be replaced. The development of technology and the upgrading of management ideas will shorten the cycle of this process. Therefore, enterprises need to update knowledge and resources in a timely manner to continue to create the ability to maintain competitive advantage. Path dependence and technological opportunities jointly determine the knowledge upgrade of enterprises. Under the open innovation model, the knowledge upgrade of enterprises is mainly achieved by coping with and managing the dynamic process of open innovation. The introduction of the U-A model and the results of Chen Yufen and the author also confirmed this. Utterback and Abernathy proposed a dynamic process model of technological innovation (i.e. U-A model). The model considers that the technological innovation process of an industry or a class of products can be divided into three phases, namely, a change phase, a transition phase, and a specific phase [125]. The operational characteristics of the enterprise in these three phases and the key resources required are different. For example, in the three stages of technological innovation, the core resources of the enterprise are technical resources (mainly technological innovation), manufacturing technology and marketing channels

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(mainly process innovation), technology accumulation and integration capabilities (mainly platform innovation). The company’s competitive basis is product performance, product quality and price, and product diversification. Therefore, companies must be able to dynamically match resources and capabilities with the technological innovation phase to win a sustainable competitive advantage. The U-A model reflects the technological innovation model of the US automotive industry. On this basis, according to the current situation of Chinese enterprises, Chen Yufen and the author proposed and explored the dynamic model of open innovation and analyzed the experience-driven and technologydriven enterprises [124]. For technology-driven enterprises, leading users, suppliers, universities/research institutions and venture capital companies are key resources in the early stages of technological innovation, and they must pay special attention to them. In the transition phase, competitors, all employees and suppliers play the most important role. At a particular stage, open innovation is dominated by platform innovation, with universities/research institutions, suppliers and mainstream users becoming key factors. Compared with technology-driven enterprises, for innovation-driven enterprises, product innovation requires almost all the sources of innovation, while process innovation requires the assistance of universities/research institutions, and the key resources at a particular stage are the same as those of technology-driven businesses. From the above dynamic model of open innovation, it can be seen that the key resources, knowledge and capabilities of the organization are not static but are constantly evolving due to factors such as market and product life cycle. While knowledge continues to flow into and out of organizational boundaries, organizations should also dynamically match their capabilities and resource mixes to respond to market and environmental changes with dynamic capabilities. Resources and capabilities are not static, and the source of innovation is the external source of corporate creativity under the open innovation model. Enterprises should take the initiative to conduct real-time and timely assessment of external innovation sources to dynamically select the source of optimal ideas and knowledge, which is the premise basis for capacity update and upgrade. The interaction process of resources and capabilities in the open innovation mode is shown in Fig. 4.15. First, the external resources of the enterprise and the stock of internal resources form a position in the dynamic capabilities of the enterprise, which encourages the flow of knowledge and resources (inflows and outflows) when the company conducts open innovation. Secondly, enterprises form core competence and dynamic capabilities through integration and utilization of resources and knowledge, which is mainly based on the knowledge flow inside and outside the enterprise, that is, the process dimension of dynamic capabilities. Finally, the dynamic capabilities of the enterprise modify, update, upgrade and reconstruct the resources and core capabilities of the enterprise through knowledge flow, thus helping the company to gain a sustainable competitive advantage.

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Update and upgrade of knowledge and ability (path) External resources (innovation sources, etc.) Knowledge flow (process)

Knowledge flow (process) Core competence

Dynamic ability

Internal resources (innovation sources, etc.) Existing resources (position) Update and upgrade of knowledge and ability (path)

Fig. 4.15 Interaction process between resources and capabilities under open innovation

4.

Construction of Enterprise Innovation Ecosystem Based on Core Competence

As a consortium of economic organizations, the innovation ecosystem emphasizes the basic logic of complementing resources and capacity evolution of member subjects. The resource-based view studies the mechanism of the impact of organizational resource heterogeneity on the competitive advantage of enterprises and attaches importance to the special resources to enhance competitive advantage [4, 126]. Barney believes that organizational resources match environmental needs and further describes the attributes of the core resources of the enterprise: value, imitation, persistence, and scarcity [5]. From the perspective of the innovation ecosystem, its basic components belong to the category of enterprise resources, and the competitive advantage of the ecosystem is reflected in the attributes of resources and the symbiotic relationship between ecosystems and the environment [127]. However, the static research attributes of the resource-based view are difficult to effectively explain the process and mechanism of organizational dynamic evolution and capacity improvement, and the research begins to shift to the perspective of organizational capabilities, especially dynamic capabilities. Dynamic capability is the ability of an enterprise to integrate internal and external resources and capabilities [123, 127– 129] and is an important foundation for an enterprise to obtain innovative value in a rapidly changing environment. The competitive advantage of enterprises is reflected in the unique resource coordination and integration process, the position of special assets and the adaptation and development of enterprises to their own evolutionary paths. The key to creating value for an enterprise is to design a mechanism for internal technology, organization, and management processes to coordinate with each other in a rapidly changing technology environment [123]. Based on the resource-based view, Eisenhardt believes that the organization’s resources provide the basis for the organization to implement value creation strategies and carry out

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related activities with customers in specific markets, so that the organization gains a competitive advantage; dynamic capabilities are a prerequisite for organizational paths and strategic paths, involving managers acquiring and concealing resources, integrating resources, and reorganizing resources to create value [121]. Dynamic capability shifts the static attribute of the traditional resource-based view of the competitive advantage to emphasize the integration, reconstruction and adaptability of the resource and ability to the environment change, thereby winning the company’s sustainable competitive advantage. On the basis of the resource-based view and the dynamic capability theory, the study integrates the dynamic capabilities of enterprises with open innovation. It attempts to integrate the knowledge interaction mechanism between the organization and external partners under the dynamic capability framework of “situation-process-path”, and finally, the enterprise core competence and the promotion of its competitive advantage are guided by dynamic capability and open innovation interaction process [117]. However, the open innovation framework of the dynamic capability perspective still needs to be improved and improved, and its main disadvantages are as follows. First of all, dynamic capabilities effectively improve the adaptability of the static attributes of enterprise resources to the open innovation external environment and member subjects, but in essence, the core competence of the enterprise is not the core goal of synergy between open and innovative innovation. The open innovation framework based on dynamic capabilities does not really focus on the composition and role of core competencies within the enterprise. Under the conditions of open innovation, enterprises may neglect the core competence based on core technology and technological capabilities due to the increase in openness and resource constraints. Thus, in the long-term dynamic development, the enterprise loses the continuous competitive advantage based on core competence. Second, the internal focus of dynamic capabilities has not effectively addressed the core dilemma of open public opinion. Open public opinion emphasizes that companies are implementing strategies such as open innovation, collaborative innovation, and innovation ecosystem. Through the introduction of external knowledge and innovation sources and in the process of enhancing the ability to innovate, such as the common evolution of member partners, the core resources and the loss of core assets emerge [101]. Innovative commercialization requires the protection of core assets [130], while the nature of dynamic capabilities emphasizes the ability of firms to adapt to the external environment. Based on this, in the background of breaking the organizational boundaries and practicing the open innovation paradigm, the ability focus within the enterprise organization should emphasize the construction of core competence with the basic characteristics of value, non-imitation, irreplaceable and scarcity. Thereby, the protection of core assets can be realized in the open innovation process and innovation activities, and the potential problems of open paradox faced by enterprise open innovation can be more effectively answered. Finally, the external focus of corporate innovation should pay more attention to the construction of the innovation ecosystem based on open innovation. Open innovation emphasizes that enterprises can achieve their own innovation ability and

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innovation performance through the purposeful internalization of internal knowledge (inward opening) and internal knowledge externalization (outside opening) [131]. However, enterprises with high levels of innovation cannot fully determine the success of competition in the market. The failure examples of a large number of highly innovative enterprises confirm that building an innovation ecosystem is the key to gaining competitive advantage [130], and the organizational competition paradigm also shifts from competition between enterprises to competition between ecosystems [132]. The innovation ecosystem is an economic union of organizational interactions [133], and the core feature of the relationship between enterprises and their heterogeneous member partners is “interdependence” [96]—the members’ respective outputs are integrated into a continuous solution for costumers through collaborative planning [90] to achieve positive feedback on innovation [130, 134]. On the one hand, enterprises create their own core competences, and on the other hand, through the collaboration with other enterprises, entities, and institutions to shape the innovation ecosystem related to core competences, thereby creating, configuring, and protecting resources that support corporate sustainability [129]. Based on the organizational management process, the enterprises can improve the organizational resource base, and adapt to the rapidly changing organizational environment in the evolution of the enterprise ecosystem. Based on the resource-based view and dynamic capability theory, the author proposes a model of enterprise innovation ecosystem based on core competence, as shown in Fig. 4.16 [135]. Within the boundaries of traditional enterprises, enterprise organizations focus on core competences. Core competence includes technical elements related to core technologies, R&D and technical capabilities, and nontechnical elements related to organizational management functions. Based on the core competences of focused enterprises, enterprises collaborate with external heterogeneous partners to build an enterprise innovation ecosystem based on core competences. The external actors include members of the innovation ecosystem, which mainly are: 1. Supply side members like universities, research institutions, suppliers, technology and financial service providers; 2. Demand side members like leading users, consumers, niche market users, competitors; 3. And policy side members like government and public institutions, etc. By building an innovation ecosystem based on core competencies, the focused enterprises realize the collaboration between the internal and external innovation entities and resources of the enterprise organization, and through the symbiosis evolution of the core competences and the heterogeneous members of the innovation ecosystem, the enterprise finally obtains the sustainable competitive advantage.

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Policy and institutional side Government Supply side

Innovative ecosystem boundary

Public institutions Research institute

Demand side Leading users

Universities

Consumers

Suppliers

Technology and financial services providers Non-technical elements Core competence

Niche market users

Core technology, research and development level, technical ability

Competitors

Traditional corporate organization boundary

Fig. 4.16 Enterprise innovation ecosystem model based on core competence

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123. Teece DJ, Pisano G, Shuen A (1997) Dynamic capabilities and strategic management. Strateg Manag J 18(7):509–533 124. Chen YF, Chen J (2008) Open innovation: mechanism and model. Science Press, Beijing 125. Utterback JM, Abernathy WJ (1975) A dynamic model of process and product innovation. Omega 3(6):639–656 126. Dierickx I, Cool K (1989) Asset stock accumulation and sustainability of competitive advantage. Manag Sci 35(12):1504–1511 127. Iansiti M, Clark KB (1994) Integration and dynamic capability: evidence from product development in automobiles and mainframe computers. Ind Corp Chang 3(3):557–605 128. Eisenhardt KM, Martin JA (2000) Dynamic capabilities: what are they?. Strateg Manag J 21(10/11):1105–1121 129. Teece DJ (2007) Explicating dynamic capabilities: the nature and microfoundations of (sustainable) enterprise performance. Strateg Manag J 28(13):1319–1350 130. Adner R (2013) The wide lens. Audio-Tech Business Book Summaries, Oak Brook 131. Chesbrough H, Bogers M (2014) Explicating open innovation. In: Chesbrough H, Vanhaverbeke W, West J (eds) New frontiers in open innovation. Oxford University Press, Oxford 132. Li YR (2009) The technological roadmap of Cisco’s business ecosystem. Technovation 29(5):379–386 133. Moore JF (1993) Predators and prey: a new ecology of competition. Harv Bus Rev 71(3):75– 83 134. Pisano GP, Teece DJ (2007) How to capture value from innovation: shaping intellectual property and industry architecture. Calif Manag Rev 50(1):278–296 135. Chen J (2015) Smart convergence—strategy of enterprise based on business and innovation ecosystem. Zhejiang University Press, Hangzhou

Chapter 5

Corporate Innovation Ecosystem Based on Core Competence Case Study—International Part

Technology is the core lever for future change and transformation, and a strong corporate innovation ecosystem is also the key to future product development. —Bill Gates, founder of Microsoft Corporation

5.1 The Case of Apple Inc. 5.1.1 The Company Profile and Development of Apple Inc. The well-known U.S. high-tech company Apple Inc. was known as Apple Computer Inc. when this was first founded in 1976 by Steve Jobs, Stephen Wozniak and Ron Wayne, and is based in Cupertino, California. In 2007, Apple Computer Inc. changed its name to Apple Inc.1 Apple was listed on NASDAQ in December 1980, and in 2012 it created a market value record for global listed companies for $623.5 billion. Although the market value in 2013 shrank by 24% to $477.9 billion, it still ranked first in the global market capitalization.2 In 2013, Apple surpassed Coca-Cola to become the company with greatest brand value in the world. In 2015, Thomson Reuters Intellectual Property 1

Source: http://baike.baidu.com/link?url=Uj26m3ExE7GsVzdOE6_h8jUS9AscNxzPiqOf0n3v FPu9764jU4AJZxA3uwGscDREzhLE8YPkfi34noU3h4-CcnCmYKoUBq0XLhS6A1-2Xlccw c2fP9vOS9C7IlkK7C2saFtRkexRO8XhVTI2biF3obyZ8LmfufTOozopZcYgBTOASlDYNtWsB LgW6YnVsOgL. 2 Source: http://baike.baidu.com/link?url=Uj26m3ExE7GsVzdOE6_h8jUS9AscNxzPiqOf0n3v FPu9764jU4AJZxA3uwGscDREzhLE8YPkfi34noU3h4-CcnCmYKoUBq0XLhS6A1-2Xlccw c2fP9vOS9C7IlkK7C2saFtRkexRO8XhVTI2biF3obyZ8LmfufTOozopZcYgBTOASlDYNtWsB LgW6YnVsOgL. Source: http://baike.baidu.com/link?url=Uj26m3ExE7GsVzdOE6_h8jUS9AscNxzPiqOf0n3v FPu9764jU4AJZxA3uwGscDREzhLE8YPkfi34noU3h4-CcnCmYKoUBq0XLhS6A1-2Xlccw c2fP9vOS9C7IlkK7C2saFtRkexRO8XhVTI2biF3obyZ8LmfufTOozopZcYgBTOASlDYNtWsB LgW6YnVsOgL. © Science Press 2023 J. Chen, Enterprise Innovation Ecosystem, https://doi.org/10.1007/978-981-99-3374-7_5

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and Technology Division ranked Apple as the 10th in the list of the world’s top 100 innovative companies.3 In 2016, Fortune the magazine ranked apple as the 9th in the world’s top 500 companies. Apple is known for innovation among high-tech companies. It designed and produced iPods, iTunes and MacBook and desktops, the OSX operating system, and the revolutionary iPhone and iPad, and it has finally become typical representative of international technology innovation.4 Its development process is narrated as follows. Apple was founded in 1976 and in January 1977, the company officially registered as “Apple Computer Inc.” when it owned funds and new computer design. Apple’s Original products were Apple I and Apple II. Apple II is widely recognized in the computer industry as a product that made up the home computer market, and millions of units were sold in the 1980s. When Apple was first listed in 1980, it attracted more money than any company with initial public offerings (IPOs) after the Ford listing in 1956, and there were more millionaires made than any company in history. Within five years, Apple was ranked among the world’s top 500. However, in the 1980s, Apple encountered emerging competitors in the personal computer business. One of the important opponents was the “Big Brother” in the computer industry: IBM. The fierce market competition has brought Apple to a downturn in development. Although Apple used a number of advanced technologies, such as graphical user interfaces, mouse, object-oriented programming and networking functions, and the epoch-making computer Lisa, Apple still lost the opportunity to gain market share due to the high price and the lack of software developer support. After that, Jobs focused on the Macintosh plan. The Macintosh continued Apple’s success, but it couldn’t reach the highest level. Microsoft introduced Microsoft Windows in 1985, and with IBM’s copy machine, Apple’s difficulties had intensified. In the following few years, Apple’s business continued to decline until Jobs returned to Apple. Jobs brought new dynamism and strategy to Apple and led Apple to launch a series of revolutionary products. In 2000, Apple’s iPod digital music player was a great success. Together with the exclusive iTunes online paid music download system, it defeated Sony’s Walkman series and became the world’s number one portable music player. In 2001, Apple introduced Mac OS X, an operating system based on Jobs’ NeXTStep. It ultimately integrated the stability, reliability, security, and the usability of the Macintosh operating system, while targeting professionals and consumers. In 2007, Apple launched the iPhone, which was the first smartphone in world. In 2010, Apple introduced the well-known iPad, as a portable product that can replace notebooks. Its novel design and unique positioning have been welcomed by the market. At the same time, Apple continued to conduct intelligent research in various fields, including smart watches and smart cars. In 2013, Apple’s brand value reached 185.071 billion US dollars, ranking first in the global brand value ranking 3 4

http://www.jdzj.com/diangong/article/2016-5-21/72601-1.htm. Chen [1].

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for two consecutive years, ranked 19th among the world’s top 500, and operating revenue reached 156.508 billion US dollars. After that, Apple continued its leading edge in brand value, market value, and innovation.

5.1.2 Core Competence Foundation of Apple’s Innovation Ecosystem 1. Core Technology and Technical Capability Since the beginning, Apple has focused on the creation of its core technology and technical capability. Through the core technology research and development and accumulation, patent protection, the creation of technical systems, the improvement of technical accessories and the development and market operation of core products, it builds the core competence of the company with core technology and technical capabilities, thus becoming the leader of the industry. At the core technology level, Apple self-developed A4 chip, iOS operating system and capacitive touch screen technology. Based on these three technologies, focusing on desktop computers, iPods, iOS infrastructure devices, notebook computers, oddities, packaging materials, keyboards and mice, monitors, Macintosh operating systems, NeXT, miscellaneous, Apple TV, Apple implemented patent protection strategies5 that increase market entry barriers for technology and product modules. Taking the A4 chip as an example, Apple regarded it as a key technology component of the company’s core processor. Through R&D investment, it obtained the chip technology license qualification of chip giant ARM in 2008, and implemented independent technology and design improvement based on ARM core processor circuit design. On January 27, 2010, it successfully realized A4 based on A4. The chip’s iPad market was launched, and by March 2010, the A4 chip-based iPhone was mass-produced. The marketization of iPad and iPhone based on the highest-end A4 chip on the technical level enabled Apple to realize the independent research and development of the core technology of the company’s product chips. It also realized the technical integration and functional integration of the A4 chip to the product processor core, GPU (graphic processing unit) core, IO core, memory controller, etc., thereby ensuring the technological leadership of the company’s products and the technical barriers and technological competitive advantages of the company’s core capabilities. Taking the iOS operating system as an example,6 Apple has strengthened the technical advantages of the operating system and divided the development and technical design of the iPhone OS operating system into four levels, that is, the core OS layer, the core service layer, the media layer, and the cocoa touch layer, thus completing the system optimization and architecture collaboration of the operating 5

http://www.nytimes.com/interactive/2011/08/24/technology/steve-jobs-patents.html?_r=1& hp&. 6 The iOS operating system is short for iPhone OS or OS X iPhone.

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Table 5.1 Apple product system classification architecture Product categories

Classified products and product series

Mac

Macbook; Macbook Air; Macbook Pro; iMac; Mac Pro; Mack mini

iPad

iPad Pro; iPad Air (2); iPad mini (4)

iPhone

iPhone (7); iPhone (6s); iPhone SE

Watch

Apple Watch Series (2); Apple Watch Nike+; Apple Watch Hermes; Apple Watch Edition

Music

iPod; iTunes; Apple Music

Apple accessories

AirPods; iPhone/iPad case; iPad Pro Apple Pen; iPhone Lighting; iPad Smart Cover; Smart Battery Case; strap; Magic Keyboard; Magic Mouse; Magic Trackpad; USB converter; power adapter; Apple Remote; Mac Pro Lock Adapter; AorPort Express; AorPort Extreme; AorPort Time Capsule

system at the technical level. At the same time, Apple has continuously reduced the operating system’s memory space by technology investment to improve the operating efficiency of the operating system. At present, the Apple operating system takes up about 240 MB (megabytes) of memory space and is a global leader in the industry. In addition to the chip and operating system, Apple has also developed capacitive touch screen technology to achieve a multi-touch at the product technology level. With the advent and development of the smart phone era, the capacitive touch screen technology has set an important guarantee for the technical threshold of Apple products, and also enables Apple to ensure the competitive advantage of the company’s core capabilities through the leading edge of high-precision touch screen technology. In addition to research and development of core technologies and patent protection for technology products, Apple has also strengthened the construction of technical component systems and product systems with a view to further building its own technical systems and technical capabilities. At the technical component level, Apple mainly built IC7 /discrete devices, memory, hard disk/optical drive, passive devices, printed circuit boards8 /flexible circuit boards,9 connectors, structural parts, functional parts, optical components, electro-acoustic components, monitors, and a technical component system consisting of peripherals and packaging materials. Apple subdivides each type of technical component to determine the complete composition of the technical components and the technical component system to cover the product requirements. At the product system level, after years of operation, Apple has gradually formed a product architecture consisting of Mac, iPad, iPhone, Watch, Music, and Apple accessories. The product series and product family corresponding to each sub-category are as follows. As shown in Table 5.1.

7

IC: integrated circuit. FPC: flexible printed circuit. 9 FPC: flexible printed circuit. 8

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2. Non-technical Elements of Core Competence Apple’s success is not only due to strong technical capabilities and product systems, but also because the business model innovation dominated by non-technical elements such as design. The core of a successful business model is to create value for customers. The high performance and high user value of Apple in the PC (personal computer) era is dominated by technological innovation and technological competitive advantages of the industry. After Jobs’ second return to the company, Apple began to think about the extension of the core competence technology elements based on the original technical capabilities. First, Apple has highlighted the key elements of “product design” based on the condition of technology and product performance leadership. In 2003, Apple’s notebook products won the annual Channel Selection Award from Computer Products and Circulation. Relying on product design, Apple’s computers, e-books and other products have gained a good reputation in the market and attracted a large number of partners to join. Taking e-book product as an example, Apple designed the brand’s pale white display effect when the product was turned on, added the automatic telescopic light effect at the top of the screen to achieve the differential light effect under the difference of power supply conditions, and a large number of customers were favored. In the design-oriented product improvement ideas, Apple optimized the product interface and iTunes music software, and enhanced the userperceived embedding of the company logo, thus integrating the design concepts of “elegance”, “fashion”, “freedom” and “exquisiteness” into the customer image of the product, becoming the benchmark in the electronic technology industry. In addition to design orientation, Apple’s core competence of technology and products further focus on non-technical elements such as customer value and customer perception, and continuously enhance the customer value of the product. For example, adding functional modules to smartphone, such as e-mail, visual voice, conversation, calendar, picture and photo management on the basis of the traditional mobile phone interface function. The internet functionalization of mobile digital terminals increases the functions of mobile internet access, search, map navigation, music, and business mail. The functional embedding and system compatibility of music playback function for iTunes, iPod, iPhone and other products. The friendly design and functional improvement of the product man–machine interface, etc. These created more value for customers, providing them with a better user experience. In addition to customer value orientation, Apple also focuses on creating core corporate cultures of design, creation, technology, and high-end, and continuously conveys the company’s cultural values to customers, and strengthens the influence of user stickiness and corporate culture. First, the company always emphasizes the corporate innovation culture concept. From the promotion of the cultural concept in the early days of the company, to the unique cultural image of the company’s leader Jobs, and the company’s excellence in each product, it has a culturally leading role for Apple’s customers and potential customers. Second, the company always adheres to the popular concept, emphasizing Apple’s industry role as a trendsetter in the high-tech industry. At the same time, every

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time the company’s technology is transformed into consumer products and services, Apple will adopt a variety of marketing methods to embed the cultural image of fashion, taste and superiority into the product. Third, the company always creates a product culture symbol of excellence. The translucent, sleek body design of the iMac computer product series and the pure white minimalist iPod design have greatly enhanced the cultural symbolic image of Apple products. The medias described Jobs who pursued the excellence of product design as a “devil-like perfectionist”, which further symbolized Apple’s products and brand image. Fourth, the company’s respect to the elite culture. Apple’s choice of internal talent emphasizes elitism, focusing on talent and less. For the design and development of specific products, the management team led by Jobs always advocates the basic strategy of talent quality.

5.1.3 Construction and Development of Apple’s Innovation Ecosystem Focusing on core technologies and business models, Apple has built an corporate innovation ecosystem based on Apple’s core competences, enabling Apple to remain a global leader in many years of international market competition. The construction and development of its innovation ecosystem is mainly reflected in the following aspects. 1. Innovation ecosystem based on core competences: core technology-led ecosystem The first important feature of Apple’s core competence-based innovation ecosystem is its leading role in the innovation ecosystem. For mobile devices that are represented by personal computers and iPhones, iPods, and iPads, Apple controls the core technology side of product development, and the segments of design, channels, and sales with the highest product profit margins. Through the ecosystem linkage of hardware partners and the supplier ecosystem architecture of technology components, a closed10 Apple innovation ecosystem based on the company’s core technology and business model operations is realized. At the core technology level, Apple cooperated with ARM in 1990 and acquired the core technology of Risc chip to provide processor support for handheld products. Based on ARM’s chip technology, Apple successfully developed A4 chip in 2007, which laid the industry leading position of core technology. On the basis of mastering the core chip technology, Apple has built an innovation ecosystem under the construction of technology component architecture which was based on the technical components of product production. The suppliers in the innovation ecosystem come from various fields such as materials, manufacturing and processing. The summary is shown in Table 5.2.

10

Closed means that the hardware, software and product channel platforms of Apple’s products are only applicable to the Apple ecosystem and its partners themselves, and the technology is closed to outside manufacturers.

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Table 5.2 Apple’s core competence-based innovation ecosystem Technical component architecture

Technical component segmentation

Ecosystem collaborator

IC/discrete device

Processor (CPU/ APU/GPU)

AMD; Intel; TI; Samsung Electronics; Nvidia

Wireless communication chip (BB/Wi-Fi/ BT/GPS)

Broadcom; Infineon; Marvell; Qualcomm; Skyworks; TriQuint

Controlling IC of touch screen

Cypress

Integrated IC

ST; SMSC; Anson; NXP; Maxim; Microchip; LSI; Sprinter; Inntersil; Avago; AMS; ADI; Rohm; Renesas; TXC

Discrete device

Diode, Fairchild, IR, Vishay

RAM

DRAM; Hynix; ROM; Micron; Sandisk

Hard disk/CD-ROM

Seagate (hard disk); Western Digital (hard disk); Hitachi-LG storage (CD-ROM)

Passive device

Crystal oscillator

Seiko Epson; KDS

Electrolytic capacitor

Rubycon

Magnetic component

Sumida; Coilcraft

Integrated passive device

Cyntec; Murata; Taiyo Yuden; TDK; Yageo

Printed circuit board/flexible circuit board

Multi-Fineline; Nanya; Flexium; IBIDEN; Unimicron; AT&S; Nippon Mektron; Interflex; Meiko; Careeris; Tripod; Fato; Multek; Oriental Printed Circuits

Connector/ structural components/ functional components

Connector, circuit group

JAL Electronics; Fujikura; Zhengzang; Volex; Molex; Amphenol; Longwell; Sumitomo Electric; Taiyi; Suzhou Panel Electronic

Structural components or phone shell

Unisteel Technology; Hi-P; Nishoku; Catcher; Jing Li; Kenisesha; Kunshan Changyun; Laird; Luen Feng; Prent; Toyo Rikagaku; Zeniya Aluminum

Functional components

Brady; Anjie Technology; Lateral Solutions; Marian; Pioneer Material; Ri-Teng Computer Accessory

Hinge, fastener Optical element

Shinzushing; Acument Global Technologies Seiko Group; Heptagon Advanced Micro-Optics

Electroacoustic component

Foster; AAC Technologies; Knowles; Fortune Grand

Battery

Battery cell

ATL

Battery module

Shunda; Simplo; Tinjin Lishen

Glass substrate

AGC

Monitor

(continued)

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Table 5.2 (continued) Technical component architecture

Peripheral

Technical component segmentation

Ecosystem collaborator

Cover glass

Lens Technology

LCD panel

AUO; Chi Mei; LG Display; Sharp; Toshiba mobile display

Touch screen

TPK; WINTEK

Power converter

Ac Bel; Delta;

Keyboard and other peripherals

Dafang; Primax; Sunrex

Packaging/printing

Brilliant; Zheng Long; Dadao; Cymmetrik; Gruppo Dani S.P.A; Kang Yi; Emerson, BYD, Sanyo Electric, Sony, Panasonic, NEC, Toshiba

2. Innovation ecosystem based on core competences: an ecosystem supported by business models The second important feature of Apple’s core competence-based innovation ecosystem is the important supporting role of the business model for the innovation ecosystem. Apple’s business model has two successful value rewards and profitability factors: first, based on Apple’s high-quality, well-designed hardware products, it is targeted at high-end customers in the same market to obtains high profit returns through product sales and market competitive advantages; Second, through online music and app stores, and repeated sales of music and software programs, Apple’s business model design obtained sustained profitability. Among them, the iTunes Store mode and the App Store mode are important practices for the success of the business model in the Apple ecosystem mode.11 (1) iTunes Store mode. Under the background of technological advantages and leading hardware products, Apple has been developing its service applications to achieve a combination of hardware and software to provide better services to customers. In 2001, Apple introduced the first iPod music player. At that time, there were only 724,000 digital music players sold in US every year, and there seemed no market prospect. But Apple launched the iTunes online music store, which provides legal music download for 99 cents per song, and only the iPod can play music downloaded from iTunes. As of the end of 2006, the iTunes music store’s download business once occupied 82% of the legal music download market in North America. iPod users can easily find the music they want through iTunes. With low prices, convenient payment methods, from appearance to content, Apple provides the best music experience for music fans. At the same time, in the iTunes music download mode, the cumbersome process of music producers delivering music to users was simplified, allowing 11

Chen [2].

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191

one song to be conveyed to more listeners and more musicians to post their own songs. For music producers, although the price of a single song has dropped, the overall revenue has risen. Apple not only sold the iPod, but also earned music sales. Most importantly, this business model has changed the long-term copyright awareness of thousands of Internet users. Users have accepted the iTunes platform and gradually established the consumption habits centered on the iTunes platform. In the “iPod + iTunes” mode, Apple’s true innovation is not limited to the hardware level, but makes digital music download easier. Apple successfully leveraged the “iPod + iTunes” combination to create a new business model that combines hardware, software and services. In fact, the launch of the iPod has also promoted the sale of Apple computers, combined with iTunes software can be online music audition and purchase directly on the Apple computer. The organic combination of “iPod + iTunes + computer hardware + operating system + online store” makes each intermediate link simple and easy to use, emphasizing a good experience, and an ecosystem is established in this way. Once consumers enter Apple’s design thinking, it is hard to get rid of. It can be said that the “iPod + iTunes” mode has changed the business landscape of the recording industry. Apple’s revenue from the iTunes Store in fiscal 2012 was $7.5 billion, while revenue from the iTunes Store was only $5.4 billion in 2011, which was lower than $7.4 billion in iPod sales. With the launch of Apple’s new mobile iPhone and iPad, iTunes has also achieved a good integration with the new mobile devices, integrating the iPhone and iPad into this music ecosystem, and the interaction has promoted the development of all aspects. Apple’s iTunes Store model innovation ecosystem architecture is shown in Fig. 5.1. (2) App Store mode. After the successful launch of the iPhone smartphone, Apple established the App Store as a platform to provide content service products based

Users

iPod+iTunes Music Producers

Users

iPhone+iTunes

iTunes Store

Record Music Companies Users

iPad+iTunes

Fig. 5.1 Apple’s iTunes store model innovation ecosystem architecture

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5 Corporate Innovation Ecosystem Based on Core Competence Case …

on iPhone terminals. In March 2008, Apple released the SDK (software development kit), and provides free downloads for third-party application developers to develop applications for the iPhone. It provides a convenient and efficient business platform for programmers and companies with ideas around the world, reducing the cost of developers. The success of the App Store is to bring the developers of a wide range of applications into the entire value chain. The App Store ecosystem is dominated by three main entities: Apple, developers, and users. It has established a business model of win–win for users, developers and Apple. In the App Store system, Apple has mastered the development and management of the App Store and is the main controller of the platform. It mainly provides a platform and development toolkit, is responsible for the marketing of the application, and charges the user, and then settles to the developer on a monthly basis. In addition, Apple often publish some data analysis files to help developers understand the user’s recent needs and provide guidance to guide development. Developers can spend $99 to join the iPhone Developer Program. The developer is responsible for the development of the application, not only with the support of official technology, but the software is also allowed to be sold on the App Store. Developers are free to price, sales revenue is shared with Apple at 3/7, an no management, accounting, and mounting costs are required. The App Store is highly attractive to third-party developers and individual developers, greatly motivating the enthusiasm of thirdparty developers. In terms of settlement of funds, Apple and credit card companies cooperatively provide the online transactions service through credit cards, providing great convenience to customers and promoting the growth of their own business at the same time. The launch of Apple’s App Store online software store had quickly gained popularity among developers and iPhone, iPod Touch, and iPad users, and it broke through 1 billion times within one year and completed an amazing 10 billion downloads in three years. Providers and developers of applications, e-books, music, newspapers, magazines, and games gathered on this platform, and games such as Angry Birds, Plants vs. Zombies were popular around the world. At present, App Store model covers three different devices, from iPhones to iPads and to Macs. The data shows that the current iOS platform software installation downloads are up to 70 billion times. According to Apple’s official statistics, in 2013, users spent more than $10 billion in the App Store, and Apple developers have so far made a profit of $15 billion in the App Store. Apple has operating system development capabilities, hundreds of millions of iTunes platform users, and experience in the music industry chain using the iPod and iTunes. Subsequently, the establishment of the App Store and the addition of the iPad made the entire Apple ecosystem more and more perfect, achieving a seamless experience between iOS devices.

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5.1.4 Case Summary According to the above analysis, the construction of an innovation ecosystem based on core competence is an important strategic and organizational measure for Apple to gain competitive advantage for a long time. Based on chip technology, iOS operating system and capacitive touch screen, Apple has formed its own leading technical capabilities. And based on technical capabilities, it built a technical system and product system which were made up by the technical components IC/discrete devices, memory, hard disk/optical drive, passive devices, printed circuit boards/ flexible circuit boards, connectors, structural parts, functional parts, optical components. The core technology-led innovation ecosystem of electro-acoustic components, batteries, displays, peripherals and packaging materials, and it has laid the foundation for sales of hardware products and high returns on market profits. On this basis, Apple strengthened the non-technical elements of its core competences, focusing on building core non-technical elements of design orientation, customer orientation, and business model operations. Relying on the operation of iTunes Store mode and App Store mode, the music, software and other resources were marketed through the iTunes Store and App Store platform, thereby further promoting the market competitiveness of innovation ecosystem of technology products and hardware on the basis of obtaining sustained profits. These two complements each other and guide Apple to success and prosperity.

5.2 The Case of Siemens12 5.2.1 The Introduction to Siemens Siemens AG (Siemens) is the world’s leading technology company. Founded in 1847, the company has operations in more than 200 countries and employs nearly 90,000 staffs, focusing on electrification, automation and digitalization.13 As one of the world’s largest suppliers of efficient energy and efficient resource technologies, Siemens takes the leading positions in areas such as offshore wind turbine construction, combined cycle power generation turbines, transmission solutions, infrastructure solutions, industrial automation, drive and software solutions, medical imaging equipment, and laboratory diagnostics. Siemens divides its business into four areas: energy, healthcare, industry, infrastructure and city, as shown in Fig. 5.2. In 2016, Siemens’ operating income was $87,660 million, with a profit of $8,338 12

The main content of this section is based on the internal consulting report of the author’s research team. 13 http://baike.baidu.com/item/%E8%A5%BF%E9%97%A8%E5%AD%90%EF%BC%88%E4% B8%AD%E5%9B%BD%EF%BC%89%E6%9C%89%E9%99%90%E5%85%AC%E5%8F%B8/ 497690?fr=aladdin.

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Energy

Healthcare

Infrastructure and city

Industry

Thermal Power Generation

Medical Imaging and Treatment

Industrial Automation

Railway Transportation

Wind Power Generation

Medical Clinical Products

Drive Technology

Transportation and Logistics

Solar and Hydropower Generation

Medical Diagnosis

Customer Service

Mid / Low Pressure

Transmission Oil and Gas

Smart Grid Building Technology

Energy Service

Fig. 5.2 Four core business areas of Siemens

million, ranking 71st in the world’s top 500.14 At present, Siemens is one of the most innovative companies in the world, and is committed to leading the trend of technology development, focusing on bringing tangible benefits to customers and other stakeholders, and promoting sustainable development through its own technology.

5.2.2 The Core Competence Foundation of Siemens’ Innovation Ecosystem 1. Technical elements of core competences: an internal innovation system based on R&D capabilities (1) Overview of Siemens R&D capabilities and innovation The core innovation power of Siemens comes from its large R&D department. Siemens has more than 29,500 R&D personnel worldwide, including more than 17,500 software engineers in more than 190 regions in more than 30 countries. From October 1, 2015 to September 30, 2016, Siemens’ R&D investment was 4.8 billion euros, ranking seventh in the world, and its input intensity is close to 6% of the company’s revenue ratio. At present, Siemens’ R&D department mainly includes R&D institutions and Corporate Technology (CT) of each business division. The focus of R&D work in the business division is to develop next-generation products and solutions, and CT is a strong innovation partner of the division, ensuring Siemens’ future technological and innovation advantages. Siemens has always been at the forefront of intellectual property rights. In recent years, its patents ranked third in Germany, second in Europe, tenth in the United States, and 57,300 patents have been authorized, as shown in Fig. 5.3. In Siemens, 20 patent filings and 39 invention reports are being submitted every working day, as shown in Fig. 5.4. While building the R&D capabilities of the company, Siemens regards China as an important base for global R&D and focuses on the development of R&D capabilities 14

http://www.fortunechina.com/fortune500/c/2016-07/20/content_266955.htm.

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Fig. 5.3 Siemens’ patent rankings

Fig. 5.4 Siemens’ patent development

in the Chinese market. At present, Siemens has about 30,000 employees in China, with an annual sales income of about 6 billion euros. China has a diverse market demand and a large customer base that is willing to try new things, and it is an ideal place to develop world-class innovation. Over the years, Siemens has continuously increased its R&D efforts in China, and China has been developed into an important R&D base of Siemens in the world. In China, as of FY2014 (from October 1, 2013 to

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September 30, 2014), Siemens has more than 4,500 R&D personnel and engineers, 20 R&D centers, and more than 10,000 valid patents and patent applications. Siemens puts more energy into designing and developing products and solutions that meet the needs of local customers in the Chinese market, utilizes China’s resource advantages to promote China’s technological development, integrates into local innovation systems, and contributes to global technological innovation. Siemens has proposed a number of innovative ideas and models for the Chinese environment, such as SMART innovation (simple, that is, easy to use; maintenance friendly, that is, easy to maintain; affordable, that is, reasonable price; reliable, that is, reliable and durable; time to market, that is, listing on time), demand-driven, horizontal and vertical integration of disruptive innovation, etc., which have an important impact on the innovation and industry. In 2013, Siemens established innovation centers in Wuhan and Wuxi. It is committed to promoting local innovation industries through demand-driven innovation projects, attracting local innovative SMEs to collaborate with Siemens on pilot projects to achieve common development with local governments and local partners. As an important part of the Siemens Corporate Technology global innovation network, Siemens China Research Institute was established in 1998 and expand rapidly since 2004. The mission of Siemens China Research Institute is to develop unique innovations that serve Siemens China and its global operations. In order to make full use of China’s advantages in innovation, Siemens China Research Institute’s innovation strategy is to maintain leadership in the high-end market through mainstream innovation, and change the rules through SMART innovation in emerging markets. SMART innovation is a new way to solve existing problems, is good enough for an initial user base in emerging markets, and has the potential to move up into the mainstream market and change the rules. Siemens China Research Institute is also committed to developing cost innovations that can continuously reduce user costs without having to reduce product value. In 2005, the Siemens China Research Institute High-Tech Enterprise Center was established in Shanghai. The center systematically introduces external innovation and commercializes it based on the introduction of external innovation models. Siemens China Research Institute has established the China Intellectual Property Department (CTIP), which is responsible for the strategic activities of Siemens’ IP (intellectual property) in China at the functional level. CTIP provides a variety of related professional services and performs management functions in the field of intellectual property, including patents, trademarks, technology transfer and licensing matters. In 2009, the Siemens China Technological Development Center (CTDC) was established in Nanjing and Shanghai to provide highefficiency and cost-effective product development and services for Siemens’ various business areas. Currently, around 380 researchers work in the innovation labs of Siemens China Research Institute in Beijing, Shanghai and Nanjing. Siemens also signed a memorandum of education cooperation with the Ministry of Education, and has established good cooperative relations with more than 200 universities and vocational education institutions. Siemens supports the establishment of experimental

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center and the establishment of a Siemens scholarship to promote exchanges and cooperation between the two sides in research, technology and talent. (2) Siemens Corporate Technology As the core R&D and innovation organization of Siemens, Siemens Corporate Technology undertakes three major missions and assumes six major responsibilities. The summary is shown in Table 5.3. In addition to its research headquarters in Munich, Germany, Siemens Academia has seven branches in the United States, China, India, Russia, Japan, Central and Eastern Europe and Qatar. The architecture is shown in Fig. 5.5. Among all the functional organizations, Siemens emphasizes the two core functions of research and development and technology and innovation management, and invests in the company’s resources and manpower to optimize the competitiveness of the two functional departments. The Research and Technology Center (RTC) is the core and largest group of the Siemens Institute. It follows its basic strategy of Siemens Institute and positions its responsibilities in seven aspects: ➀ Coordinate technical roadmaps with various divisions and promote value innovation; ➁ Joint innovation with leading users; ➂ Promote the company’s unified coordination at the technical Table 5.3 Basic mission, responsibilities and guidelines of Siemens corporate technology Main aspect

Detailed description

3 missions

● Protect the company’s long-term accumulation of technology and innovation wealth ● Create long-term advantages in the company’s future technology and innovation ● Maintain the company’s technical unity and synergy

6 main obligations

Applied research; Commercial development; Standard setting and leadership; Technology and innovation management; Technology integration; Collaboration and service

8 major criteria

● Develop Siemens technology and innovation strategies at the company level, ensuring seamless connection between technology and innovation processes between the company and divisions ● Serving as a strategic partner for the Siemens business and as an important part of its value chain ● Continuously develop technologies and innovations for Siemens with significant influence, and clearly emphasize the final result, the business responsibility of innovation implementation is partly the responsibility of the business department ● Actively manage technology and innovation portfolios and systematically leverage external resource networks to provide Siemens with the best know-how knowledge ● Serve Siemens internal customers with global thinking and architecture ● Get the best performance through proprietary channels such as regional institutions and focused technologies ● Promote innovation and performance culture and expand influence within and outside the company ● Talent is the foundation of everything, attracting and developing creative talents for Siemens, and exchange talents with the business department

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Fig. 5.5 Architecture of Siemens corporate technology

level; ➃ Coordinate the work of R&D institutions in various regions; ➄ Strengthen the network connection with internal and external research institutions and organizations of Siemens; ➅ Promote operational optimization; ➆ Set benchmarks on intellectual property, processes and performance to increase return on investment. According to the specific research and development field, the research and development department is divided into different research and development groups. At present, there are 13 technical fields or research groups, as shown in Fig. 5.6. In the architecture of Siemens Corporate Technology, except for its core R&D department, there is also a department responsible for innovation strategy development and internal and external partnership management, namely Technology and Innovation Management (TIM). As the strategic department of Siemens Corporate Technology, the Technology and Innovation Management Department provides comprehensive guidance for the institute’s strategy, particularly in internal innovation Research and Development Department

System engineering

Software architecture development

Image and computer vision

Material

IT Platform

IT Safety

Electronic

Business analysis and testing

Sensor Technology

Fig. 5.6 Research and development department of Siemens

Automation and control

Energy and drive

Network and communication

Energy conversion

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and technology research planning and external collaboration. It provides a range of services and functional support for the Institute and Siemens technology positioning and innovation capabilities, and its performance is closely related to Siemens innovation. Its responsibilities are mainly reflected in the following aspects: ➀ The quality and level of technology and innovation management processes at Siemens Corporate Technology; ➁ The quantity and quality of innovative ideas and projects generated; ➂ Internal and external recognition of Siemens’ innovation capabilities, technical leadership and research influence; ➃ The quantity and quality of external cooperation and open innovation activities of the institute; ➄ The quality of cooperation and strategic collaboration between the institute and the various divisions. Based on the requirements of the responsibilities, the organizational structure and functional distribution of Siemens Technology and Innovation Management is shown in Fig. 5.7. 2. The “House” mechanism of Siemens Corporate Technology and Business Unit The “House” established between Siemens Corporate Technology and various divisions is an important mechanism for establishing a strategic and sustainable partnership between the two. The mechanism was first launched at the China Research Institute, and later promoted to the headquarters. It has now proved to be a relatively effective method for research and development cooperation and transfer of results Technology and Innovation Management Department The management team provides support for decision-making by TIM’s leaders and serves internal communication; members include TIM leaders and financial and human-related leaders

Strategic and portfolio sectors Including three teams in technology management, innovative business areas, responsible for leading the planning process, developing research and innovation portfolios, developing technology and method roadmaps, and providing guidance to the various departments of the Institute;

Strategy Group Research platform for corporate innovation and strategy issues, including heads of TIM departments, etc.

Regional Departments USA, China, India, Japan

External cooperation department Promote cooperative development based on specific R&D partners, partners involved in industry, academia and research

Vision and Technology Search Department Responsible for the “window of the future” development, exploring possible technological and social trends for Siemens; responsible for creative collection in open innovation; responsible for providing technical search services internally

Communication and media department Responsible for the communication and activity organization within the institute and with the company; supporting the external communication activities of the heads of CTO and research institutes, media promotion, etc.

Information and Information Research Department Science’s Technology Information Center, responsible for business and market information collection and analysis

Fig. 5.7 Organizational structure and functional allocation of Siemens Technology and Innovation Management

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between the research institutes and the divisions. The reason for adopting this mechanism is as follows: First, the responsibility of the institute is mainly to serve the internal divisions, and each division is the main internal “customer” of the research institute. The institute needs to better serve this internal customer, to capture its needs and tasks, and to maintain close relationships and communication channels. Second, the budget of the institute is required to be around 60% to 70% from the division. The institute needs to ensure that the results of the cooperation will benefit the divisions and bring real economic value to the them, thus creating more cooperation opportunities and more support from the divisions. Finally, each division generally has its own research and development institutions, and they are also the most direct partners of the institute. How to effectively define their respective division of labor, give play to their respective advantages, and cooperate with each other is a challenge. Based on these situations, the institute tried to establish an internal joint research platform from the specific research group level and related divisions. This cooperative platform (research house) is jointly invested by the research institute and the division (department). Generally, the division contributes 70%, and the research institute contributes 30%. It is known as the “internal joint venture” mechanism between the two, as Fig. 5.8 shows. The research project of the research house is proposed by the division or initiated by the institute. They negotiate and set up, mainly to solve the key problems faced by the institute of the division, focus on the technology that can bring competitive advantage to the product, and projects that have potential subversive performance opportunities. The project cycle is generally about 3 years. Each research house may have multiple projects at the same time, forming a reasonable combination. The personnel come from both sides and generally maintain more than five people. At present, for the Siemens China Research Institute, through the joint research house and the cooperation funds of various business units, it has accounted for 42% of the total cooperation funds with the business department, and the number of cooperative housing has reached 10, resulting in more than 100 inventions, at least 15 Fig. 5.8 Joint research house between the institute and the division (Department)

MC Division CT-MC

Institute

CT-GT GT Division

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The component and 10 innovative products were adopted by the division. The process of creating a joint research house is generally divided into four phases, as shown in Fig. 5.9. For the architecture of each research house, the basic elements include the basic situation of the research house, positioning and strategic planning, major joint research projects (product and technical aspects) and project planning, research team and its structure, infrastructure (tool platform), etc. Based on years of practice, the successful experiences of the joint research house are summarized as follows: ➀ Clearly define the tasks and concepts (position) of the joint research house, including clear and transparent long-term cooperation goals and phase tasks, and begin to be patient and ensure that the research team members have a better understanding of the divisions, products, processes and Related areas within 1–2 years; ➁ Both have a clear understanding of budgetary planning and restrictions; ➂ Start from the bottom, don’t try beyond reach; ➃ The joint research house will eventually bring new business opportunities and technical capabilities to the divisions, and it is not available in somewhere else; ➄ Joint research houses can be an additional talent development and input channel; ➅ Horizontal integration between different research houses and research groups to create a comprehensive advantage; ➆ Manage, maintain and develop the relationship between research houses and divisions, and do not take it for granted; ➇ The research house needs continuous support from the top, otherwise it would be difficult to succeed; ➈ Strong leadership is necessary, both in institutes and in divisions, especially at the beginning. 3. Non-technical elements of core competence: innovation strategy and portfolio management In addition to attaching importance to the development of enterprise R&D capabilities and technological innovation systems, Siemens also attaches great importance

Institute’s mission

Building technology and innovation foundation

Creation and learning phase

Development Phase

Explore future technology and innovation opportunities

Support Siemens to become a complete technological organization

Innovation phase

Comprehensive phase

Change the rule Invest in more innovative advice and ideas for research houses Bring more initiative to the research institutes

The joint mechanism has been gradually improved, and it has been approved by the business department and horizontally combined with other research departments of the research department to create a joint advantage to openly discuss cooperation between the research institute and the division.

Evolutionary phase

Main mission

Understand the team's strategy, areas, processes, and tool divisions

Develop the first project and build a cooperation platform Multiple project launches Mainly driven by the business division

Fig. 5.9 The creation process of the Siemens joint research house

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to the core competences of the innovation strategy. And through the continuous optimization and combination management of innovation strategy, the core competence building led by the company’s innovation strategy is realized, and the internal capability foundation is provided for the open innovation and innovation ecosystem construction based on the company’s core competence. (1) Vision, Mission and Goals of Siemens Innovation Strategy The Siemens Innovation Strategy is an important part of Siemens’ strategy and the foundation of Siemens’ long-term competitiveness, and it covers the company’s entire products, solutions and services. Innovation highlights include the enhancing customer value-added through software and IT solutions (such as software architecture and platforms), enhancing innovation efficiency and creating an open innovation culture based on partner networks, focusing on new technology-driven business areas and new business model development. Based on this, after years of practical exploration, the company has formed clear visions, missions and goals of the innovation strategy, as summarized in Table 5.4. According to Siemens’ vision of innovation, Siemens is committed to adopting different strategies at different stages of development of technology or products in the choice of innovation strategy: For the breakthrough technologies and products, non-continuous new technology and pilot technology, strive to become the first owner of technology, to be the “early bird”. For technologies and products that are in the rapid development or maturity stage of products and markets, adopt a rapid imitation strategy to be the “second mouse” and share market results, as shown in Fig. 5.10. (2) Planning and portfolio management of Siemens’ innovation strategy Siemens’ strategic planning and evaluation of innovation is carried out by the strategy and portfolio team of the Technology and Innovation Management Department to promote and organize relevant departments (such as research and development departments, finance departments, etc.), and to coordinate with the company’s strategic planning and annual evaluation and budget planning process. The basic process is shown in Fig. 5.11. Based on strategic planning and evaluation, Siemens vigorously promotes the portfolio management of innovation strategies. The development of Siemens’ technology and innovation portfolio was developed by the innovation portfolio group of the Corporate Technology’s technology and innovation management. The innovation portfolio group has three main functions, namely, technology portfolio management, innovation portfolio management, and business area innovation collaboration, as shown in Fig. 5.12. (1) Technology portfolio management. In the development of the technical portfolio, the CTO of Siemens will discuss with the technical leaders and research and development departments of each business unit whether it is necessary to adjust the Siemens technology field. The specific adjustments are mainly based on the roadmap in the technical field, the needs of

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Table 5.4 Summary of Siemens’ innovation strategy vision, mission and goals The innovation strategy elements of Siemens

Description

Vision of innovation

Become a technology pioneer and leader in Siemens’ business related fields, as follows: focus on technologies that dominate future trends, and build corresponding technology portfolio; The increasing trend dominates the development mode of technology; Achieve effective R&D input and output; Maximize the value of Siemens’ capabilities and assets

Mission of innovation

Make Siemens be recognized for its succeed innovation (Siemens impresses with innovations that make real what matters)

Goals of innovation

● Establish a technological leadership position, including research and development, customer and business focus, and intellectual property. Key research areas include energy efficiency (including energy production and transmission), smart grid and energy storage, efficient energy use (including construction, industry and transportation), automation and digital factories, data to business, medical imaging technology ● Enhance the level of open innovation ● Driving digital development: Siemens in the view of the end customer is the new (digital domain) business model thought leader, digital process leader and pioneer and digital product developer ● Seize the growth opportunities: identify and discover new technologies and innovation opportunities in the future, form new growth points in the future, and optimize future growth portfolios ● Achieve the best performance

each division, and the vision planning and technical search results. The technical field planning is mainly to formulate the technology roadmap and budget, and comprehensively consider factors such as the company’s self-operated and competitive development plan and intellectual property strategy, and finally determine the technical field and direction that the company should concentrate on. The technical assessment is mainly to organize project information, listen to project introductions and discussions, listen to internal and external opinions and feedback, define implementation evaluation criteria, and finally report to R&D management. (2) Innovation portfolio (pipeline) management. Siemens identifies, evaluates and drives technology-driven business opportunity development. These opportunities are generally strategically related to Siemens and take advantage of Siemens’ institutes and the divisions. The innovation pipeline is mainly to evaluate a large number of innovative ideas and promote their final implementation pipeline. Figure 5.13 depicts the development process for an innovative project. In terms of implementation, during the management of creative and business opportunities, Siemens sees the following channels as an important source of creative and business opportunities: Future window PoF (picture of future), strategic

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Maturity

Basic technology Basic ability of current business

Quick imitator "The second mouse eats the cheese in the cage"

Key technology Decide today's competitiveness

Pioneer "Early bird gets the worm"

Pilot technology Decide tomorrow's competitiveness

New technology Discontinuous technology New rules

The Blazers are older than the birds, but behind the first mouse, they eat both worms and cheese Time

Fig. 5.10 Siemens’ innovation strategy choice

New fiscal year

Sep

Oct

Nov

Next fiscal year

Dec

Feb

Apr

May

Strategic assessment

Strategic critical issues

Innovation template

Jun

Aug

Sep

Oct

Company budget planning process (company finance department)

Company strategic planning process (company strategy department)

Corporate strategy and budget annual planning process

CT’s Support Process

Jan

Budget approval

Is investment needed?

Innovation Assessment I Specific Innovation Areas

R&D investment and benefit?

Strategic development

Innovation Assessment II Innovation Capability, Focus on Division

Continuous communication with the division (Division Research/Assessment Meeting, Joint Project, Cooperation of Innovation Working Group)

Fig. 5.11 Planning and evaluation process of Siemens’ innovation strategy

projects (such as related industries), innovative working groups, creative competitions (internal and external), Siemens employees, etc. In the stage of innovation and creative development, Siemens mainly screens business opportunities based on the following criteria: whether the project has high profit potential, whether the project is related to the current business or cross-business related, whether the project exceeds

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Fig. 5.12 Innovation portfolio group model of Siemens innovation portfolio management

the current business field, whether the project can protect the highly strategic projects in the current business, and whether the project has the potential to response to subversive challenges. In the implementation of the project evaluation, systematic evaluation and decision-making of innovative projects is required, and it is mainly based on the following criteria: recognized by the business department and research institute, and promised to be the owner of its business; strategically related to Siemens; have significant positive impact on Siemens’ operating income and EBIT (earnings before interest and tax); is of great significance to Siemens technology and research institutes.

5.2.3 Construction and Development of Siemens’ Innovation Ecosystem 1. Building an open innovation ecosystem Siemens itself has strong technical research and development capabilities and innovative capabilities, but even then, it still attaches great importance to open innovation investment and forms its own open and innovative ecosystem. The first is to establish a joint and trusted R&D system with universities and research institutions around the world. This will help Siemens to make full use of global R&D and intellectual resources to ensure its technological leadership and R&D efficiency. In addition, in terms of acquiring external emerging technologies and technology transformations,

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Innovation project implementation

Innovation portfolio development

Output: Business plan

Innovation transfer

Output: prototype

External technology import

Technology-driven business opportunities

CTO, Technology and Innovation Management, Corporate Strategy Department, Department of Affairs

Research Institute Technology Project

Export Prototype of technology Prototype of business

Division unit or company

External project merger or investment Research Project: Technology and Innovation Management Division Project: Division

Technology industrialization CTO, Technology and Innovation Management, Corporate Strategy, Divisions

Fig. 5.13 Siemens innovation portfolio development and innovation project development process

Siemens has formed business modules like university relationship (UR), technology to business (TTB), new business development (siemens new business, SNB), and siemens technology accelerator (STA). They work together to realize the acquirement of external risk technologies and commercialization, the capture of external disruptive business opportunities (to form new Siemens businesses, prevent disruption), and the external commercialization of internal non-core technologies (to form externally independent new businesses). Together with the independent Siemens Venture Capitals (SVC) segment (responsible for new business growth in external growth), they form the complete open innovation spectrum of Siemens, meeting different innovation needs and ensuring timely access to external technological advantages, business opportunities, and ensuring maximum commercial value of internal intellectual property, as shown in Fig. 5.14. Siemens is a leader in research collaboration with universities. For example, Siemens has established a three-tiered tower-shaped cooperative system and operational mechanism. The top-level cooperation at the tower top is to establish strategic partnerships with the top 6 universities (including Tsinghua University) that best match their own business, and guarantee a certain cooperation budget and number of projects each year; the middle layer is selected from 50 to 60 world-renowned universities as the key scientific research cooperation partner of Siemens; and the bottom is the nearly 700 other universities that have a relationship with Siemens, they generally provide technical and R&D support to Siemens in one specific aspect. The cooperation with these universities is carried out by their research institutes and corporate cooperation departments, and is ultimately managed by a university cooperation committee.

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Universities and research institutions External technology development

Subversive business opportunity

External venture companies

University Research (UR) Risk Technology Commercializatio n (TTB) Start New Business (SNB)

Product and technology Siemens Technology Accelerator (STA)

Siemens technology

Innovative businesses

New businesses Siemens Venture Capital (SVC)

Start-up and growth businesses

Fig. 5.14 Architecture of Siemens open innovation ecosystem

In addition, for risk-oriented technology commercialization, new business development and Siemens technology accelerators, Siemens has a strong and complete open innovation ecosystem that covers technology transfer, technology incubation and venture capital, and is the department (Open Innovation Ecosystem Unit) is implemented to bridge the gap between technology and business. At present, the core modules of Siemens’ open innovation ecosystem mainly include high-tech enterprise to technology (TTB) and technology accelerators, mainly distributed in Munich, Germany, Berkeley, USA, and Shanghai. Their positioning is shown in Table 5.5. Figure 5.15 summarizes the basic architecture of the Siemens Open Innovation ecosystem. The overall tasks and objectives of these open innovation units are as follows: ➀ Enhance the company’s ability to innovate while having the right return; ➁ Screen for new business opportunities and innovative technologies in the market; ➂ Generate new business or startup companies by implementing innovative technologies or ideas in the form of Siemens or external; ➃ Directly participate in external entrepreneurial or growth companies or venture capital; ➄ Financial guidance and support; ➅ Create new cultures of innovation and corporate cultures. Among them, Siemens High-Tech Enterprise Center has offices in highly developed places such as Berkeley, Shanghai, and Munich. At present, there are more Table 5.5 Target description of the core module of Siemens’ open innovation ecosystem Core module

Target position

Commercialization of risk technology

Access to external valuable innovations in technology and technology transfer (inward)

Siemens technology accelerator

Industrialize internal non-core technologies (outward)

New business development

Incubate subversive new startups for Siemens

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Siemens Technology Accelerator (Munich) Seed phase (creative, patent)

Commercialization of risk technology (Berkeley, Shanghai, Munich) Market entry

Start-up phase

Siemens Venture Capital

Siemens Venture Capital (Munich, Boston, Palo Alto, Beijing) Expansion and growth M&A

Siemens Technology Accelerator Siemens’ Technological-enterprization Mission and goal

Fig. 5.15 Panorama of the Siemens open innovation ecosystem. The creative development section is not included in the figure

than 20 people in the Shanghai High-Tech Enterprise Center Office (as of 2014), mostly returnee doctors. They mainly collect original and breakthrough scientific and technological achievements from a global range, carry out a series of internal evaluations and research, and coordinate with Siemens Research Institute, various business units or venture capital departments to find internal supports or interested “buyers”. For valuable technologies, technology transfer will be carried out. If the technology itself is not mature enough, it will generally support further development, and mature technologies will organize prototype development and even commercial development. Compared with other Siemens innovation departments, the high-tech enterprise center has a wide network of external contacts and cooperation, which constitutes its own innovation ecology, including universities and research institutes, laboratories, venture capital and angel investment, startup companies, various innovation clubs, etc. In addition, it is relatively independent, without the rigorous R&D management process of the Institute, has a relatively relaxed atmosphere, allowing for failure and emphasizing entrepreneurship, which all help to ensure the development of its innovation work. Besides, Siemens has a venture capital department affiliated with its financial services company: Siemens Ventures Company (SVC). It is a venture capital organization affiliated with Siemens with the goal of investing in innovative technologies such as information and communications, medical systems, automation and control, electricity, automotive technology and transportation systems, and lighting. Since its inception in 1999, it has invested in more than 900 million euros to more than 170 technology companies or venture capital funds, mainly in the United States, Europe, Israel, and China. It established a Beijing representative office in China in 2006, specializing in direct investment in start-up and growth-oriented high-tech companies in the Asia Pacific region, which includes start-up and growth-oriented high-tech

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companies focused on investing in energy, healthcare, industrial, infrastructure and city-related businesses. 2. Global ecosystem of industry-university-research cooperation based on knowledge assets15 (1) Overview and typical subjects of the Siemens industry-university-research cooperation ecosystem Siemens realizes that continuous improvement of innovation and profitability are the guarantees for success, which requires continuous investment in research and development. As one of the world’s largest electrical engineering and electronics companies, Siemens has been seeking extensive collaborative research to improve innovation and reduce R&D risk. At present, the company has cooperated with more than 600 universities or research institutes in 70 countries, and its partners are spread across five continents. The company conducts approximately 1,000 new collaborative projects each year, with research grants of more than 60 million euros per year to research partners, exceeding 1% of total research and development expenditures in fiscal 2006 (5.7 billion euros). Through these collaborative researches, Siemens can gain greater innovation advantages and strengthen its links with important scholars in relevant international disciplines; The university has more opportunities to enrich the subject expertise, understand the research and development focus of the electrical engineering and electronics industry and the development trend of the industry, and students will have more opportunities to understand the company and promote career development. In the past ten years, Siemens has been actively seeking cooperation with top universities in China and has established a number of companies. As early as June 1998, Siemens Technology Department launched a cooperation project with Tsinghua University to jointly develop an advanced animation multimedia user interface for mobile applications. The cooperation has been fruitful and continues to this day. Now, Siemens has cooperated with 16 famous universities in China to promote research and development activities, knowledge popularization and education. In November 2005, Siemens signed a cooperation agreement with Shanghai Jiao Tong University to jointly develop radio frequency identification (RFID)-based wireless information service test bench. In 2005 and 2006, Siemens Automation and Drives Group donated an automation system with a total value of more than 10 million yuan to ten key universities in China to support Chinese universities to establish China Automation System Engineer Accreditaion (Automation System Engineer Accreditaion, ASEA) Skills Testing Center. At present, Siemens is still taking measures to expand its global cooperation network with universities. The following would be a brief introduction to three main types of collaborative research models: the centers for knowledge interchange (CKI), the ambassador university system, and the Siemens lectures at universities and colleges.

15

The main content of this section comes from: Chen and Jin [3].

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The Center for Knowledge Interaction is the model where the company works most closely with the university. In order to conduct in-depth research in wide fields, Siemens has established a Center for Knowledge Interaction in Germany and several other science and technology universities around the world. There are already three Center for Knowledge Interactions in operation, which are respectively Center for Knowledge Interactions for medical technology and information and communication technologies established with the Technical University of Munich; Center for Knowledge Interaction for industrial technology and professional development with Aachen University of Technology; Center for Knowledge Interaction for sustainable engineering, environmental technology, biotechnology, and medical technology with the Technical University of Denmark. There are also two special Center for Knowledge Interactions, the Center for Knowledge Interaction for Medical Technology, established at the University of Greifswald, and Center for Knowledge Interaction for wastewater treatment and mining technology established at Freiberg Technical University. Siemens will build more centers around the world, especially in China, US, and India. The University Ambassador System is a cooperative operator of Siemens or a member of the company’s executive committee who plays the role of “ambassador” in selected partner universities. They strengthen and deepen their cooperation with universities by exerting their attraction and ability, aiming to establish long-term cooperative relationships. Siemens has now established this system with 35 German universities and will choose 30 universities in other countries to promote this model. Complementing these centers and systems are wide range of project-based collaborations, including public fund-funded collaborative projects, bilateral collaborative projects, and informal knowledge sharing. In order to expand the influence of Siemens in the university, there are about 100 in Germany and about 200 Siemens employees around the world teach at universities. These lecturers have deep natural science backgrounds and extensive industry practice experiences. The establishment of Siemens lecturers not only attracts outstanding university students to join the company, but also promotes the integration of industrial knowledge and subject knowledge, and enhances the image of Siemens in the academic field. (1) Overview of industry-university cooperation between Siemens and RWTH Aachen. RWTH Aachen is one of the best engineering universities in Germany, share the same reputation with the Technical University of Berlin and the Technical University of Munich. The university is located at the junction of Germany and the Netherlands, Belgium and other countries. It adheres to the concept that cooperation is the advantage, RWTH Aachen has a wide range of cooperation with other universities, research institutions and industries. It has contributed to the promotion of German economic and technological development and the impact of Germany in the European Union. For example, RWTH Aachen is a member of the influential IDEA Alliance (the Delft University of Technology, the University of Aachen, the Imperial University of London and the Strategic Alliance of the Four Universities of Zurich).

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Relying on geographical and disciplinary advantages, RWTH Aachen has established a number of industry-university cooperation platforms that integrate many companies and universities, such as platform life sciences, Ultra High-Speed Mobile Information and Communication (UIMC). And Communication, UIMC) and the Competence Network Information Technology Aachen. The purpose of the platform life sciences is to form a life technology cluster (network), promote the development of life technology, promote life science research in the region, and enhance the regional leading position in the EU. The main members of the platform life sciences include enterprises like Bayer, Philips, Science Strategy Consulting and universities like RWTH Aachen. The Ultra High-Speed Mobile Information and Communication research network is interdisciplinary and incorporates research institutions in many different research fields (such as signal processing, information systems, textile engineering, communication networks, communication systems, etc.). The main members of the Competence Network Information Technology Aachen include RWTH Aachen, the Jülich GmbH Research Center, and the Aachen Polytechnic, it aims to expand cooperation between universities and enterprises in and outside the region, promote regional industrial development and the flow of talents. (2) Overview of industry-university cooperation between Siemens and Munich University of Technology. In order to provide the professors and companies with a platform for the exchange of technical information, to better promote collaborative research with companies, and to seek more corporate and social sponsorship for scientific research, the Technical University of Munich launched the “Knowledge Alliance” partner project in 1999. The project is a platform for publishing some of the projects that the professors are studying, so that other researchers and companies interested can understand the information, establish connections, and professors and professional researchers can also use the platform to understand the research projects that the company expects. Through the “Knowledge Alliance”, the Munich University of Technology has established a number of research institutions, Such as The Unternehmer TUM GmbH Center for Entrepreneurship, The Carl von Linde Academy, The Center for Entrepreneurial and Financial Studies, The Foundation Institute for Financial Mathematics, The Else Kroner Fresenius Center for Nutritional Medicine, etc. In addition, the “Knowledge Alliance” also holds regular gatherings and invites partners to participate, provides networking opportunities for technology research partners and sponsors to form a collaborative social network that enables all participants to profit and enhance the capability of innovation and competitiveness. In order to better serve industry-university cooperation, reduce disputes and improve performance, Munich University of Technology established the Service Centre for Research Support and Technology Transfer in 2005 to handle contract legal services, patent services and the EU-related matters.

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(3) Typical model of Siemens’ industry-university-research ecosystem: Center for Knowledge Interaction (1) Overview of the Center for Knowledge Interaction. As mentioned earlier, Siemens has established Centers for Knowledge Interaction at the RWTH Aachen and the Munich University of Technology. For the Munich University of Technology, this center for medical technology and ICT is a bridge between school research and industry. RWTH Aachen believes that the establishment of the center will help promote the innovation activities of the university, and cultivate talents who are more adaptable to the development trend of the industry, meet the needs of industrial development, and have industrial practice experience. In short, the Center for Knowledge Interaction has produced “1 + 1 > 2” performance around two cores—innovation and talent development. The Center for Knowledge Interaction is essentially a strategic alliance between Siemens and the above two schools. The alliance only limits the direction of cooperation, but does not plan specific cooperation content. Through the alliance, the partners not only improve the success rate of the project, but also increase the profitability of the project commercialization. The establishment of the alliance has enabled the cooperation between the two universities and Siemens to be orderly and efficient, expanding the application fields of knowledge technology and improving the performance of knowledge technology. The participating staff of the centers are Siemens’ researchers and professors of the two universities, full-time researchers and university students. These researchers gather together through projects to communicate and collaborate to achieve common goals. In addition, the Center also regularly organizes innovation forums to invite elites from all over the world to discuss innovative themes; the Center regularly organizes student forums to strengthen exchanges between students and deepen students’ understanding of collaborative research projects and subject areas, and also their sense of identity with Siemens. Since the center was established, both strategic alliances have made great progress and remarkable achievements. For example, as of March 2007, in less than four years, Munich University of Technology and Siemens agreed to carry out 124 cooperation projects, 34 officially run projects, an average of nearly 10 per year, the total amount of 11.4 million euros has been invested in cooperation, with an average of more than 300,000 euros per project, and more than 50 professors have participated. (2) The knowledge and capital transformation of Center for Knowledge Interaction. Any collaborative research involves research, knowledge, innovation, and capital. The investment in research capital prompts the research work to proceed smoothly, and the research process and results will generate new knowledge. When the new knowledge is applied to innovative practice, the commercialization of knowledge results is realized in the form of products or processes and profits are made. The profits are once again put into research, and the cycle is repeated. In other words, research is the bridge between capital and knowledge, and innovation is the bond between knowledge and capital.

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Around the operation of the Center for Knowledge Interaction, the cycle of research, knowledge, innovation and capital is actually a virtuous cycle of interaction between ability, knowledge and capital. As shown in Fig. 5.16, from capital to research, until innovation transform into capital, the arrow for each transformation is bold, indicating that the energy of conversion is multiplied. In short, after studying capital investment, through cooperative research, both sides of the cooperation have generated new knowledge based on the original knowledge, not only new theoretical knowledge of the discipline, but also new knowledge of industrial practice. In the same way, through innovation, knowledge is transformed into products, and commercialization is realized. It not only reflects the value of knowledge, but also increases the competitive advantage and actual profit of both partners, so that more capital can be invested in future research. Through research and innovation, the alternating transformation between capital and knowledge can not only promote the success of commercialization, the increase of partner capital, but also enhance the competitiveness and cooperation confidence of all parties involved. (3) Management mode of Center for Knowledge Interaction. The successful development of the center is closely related to its management. The central management is carried out jointly by the two universities and Siemens. The central office is located in the university, and the main staff is university researchers, but the office operation funds come from Siemens. The center set in the university is responsible for managing all cooperation projects. According to the cooperation framework for several years, a committee composed of senior university professors

Research

Capital

Center for Knowledge Interaction

Knowledge

Innovation Fig. 5.16 The mutual transformation of knowledge and capital with research and innovation as a bridge. Source Information on the official website of the Technical University of Munich, http://por tal.mytum.de/welcome

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and Siemens officials meets regularly to discuss cooperation projects and cooperation directions for a period of time to jointly make the development strategy of the center. The management of the center mainly focuses on four aspects, namely innovation management, scientific and technological human capital management, student development and student network construction. (4) Characteristics of the industry-university-research strategic alliance of the Center for Knowledge Interaction. In summary, it can be found that the knowledge interaction center has the following characteristics. ● The center is a long-term strategic alliance. For example, both centers mentioned above have been in operation for many years. ● The operation of the center is focused on a certain area for multi-project research. For example, the Center for Knowledge Interaction at the Munich University of Technology has conducted 34 studies in 4 years. ● Emphasize interdisciplinary research with a specific knowledge area as the core. For example, the Munich University of Technology is centered on medical technology and information technology, but the main personnel are professors from the School of Mechanical Engineering, the School of Pharmacy, the School of Electronics and Information Technology, and the School of Information. The personnel from Siemens are mainly experts in pharmaceutical group, communication group, logistics and installation system group, enterprise technology, etc. ● The center is set up relying on the strengths of the school. For example, industrial technology is the strength of the RWTH Aachen, and medicine and information technology are the strengths of the Munich University of Technology, and their centers are based on these strengths. ● Focus on student development. The center supports students’ network construction, encourages students to communicate, and attaches importance to the cultivation of innovative management and innovative spirit. ● Promote the mutual conversion of capital and knowledge.In short, the Center for Knowledge Interaction is a platform for industry-university cooperation and exchange, for creating theoretical knowledge and industrial practice knowledge, and for communication among professors, researchers, and students.

5.2.4 Case Summary Based on the above analysis, around the R&D and technological innovation system, and the combination of innovation strategies to manage the two core competencies, Siemens has built an open four-tiered innovation ecosystem consists of products and technologies, Siemens technology, Siemens new business, start-up and growth business. And relying on Siemens technology accelerator, risk technology commercialization, and Siemens venture capital management, the operation of open innovation ecosystem based on Siemens core competence is realized.

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5.3 The Case of Procter and Gamble Company16 5.3.1 The Development of Procter and Gamble and the Evolution of the Global Innovation System Founded in 1837, Procter and Gamble (P&G) is one of the longest-lived and largest fast-moving consumer goods companies in the world. P&G operates in approximately 70 countries and regions around the world. In fiscal year 2014, the company’s annual sales amounted to nearly $84 billion (approximately RMB 500 billion). P&G has factories or branches in more than 80 countries around the world. More than 300 brands’ products are sold in more than 180 countries and regions, including oral care, health care, and home care products. At the beginning of P&G’s operation, it started with candles and soaps. Then in 1886, it made the first national product “Ivory” soap in history, and in 1905, when TV was introduced to the United States for 5 months, it was the first to take the marketing strategy (“Soap Opera” is named) of inserting advertisements between TV series. This marketing strategy has laid a huge consumer base for P&G in North America. In the next few decades, P&G has developed innovative products that influence global consumption habits: effective decontamination washing powder Tide, replaceable diapers Pampers, the world’s first fluorine-based anti-mite toothpaste Crest. These world-class innovative products helped P&G begin its geometric growth. In 1980, its sales reached $10 billion, and began to actively promote overseas expansion, and finally entered the Chinese market in 1988. P&G’s entire adjustment period consists of three phases. In each phase, the company has developed new capabilities in the challenge and deepened its original strength. (1) The basic phase (108 years since the company was founded). At this phase, P&G has undergone many transformations to accommodate the company’s ability to gain a foothold and grow steadily during this phase. During the American Civil War, P&G earned a large profit by selling candles to the military. But with the end of the war, the income associated with it has all disappeared. In order to fill the gap left by the disappearance of this income, the company began to explore new market opportunities, and eventually developed Ivory, a trademarked and graded soap. By learning and mastering new chemical control technologies, promoting large-scale mass production and distribution, and conducting effective advertising and promotional activities, the Ivory brand has become a successful brand in the United States created by P&G. With the successful establishment of more and more products and brands, such as Crisco, Camay, Oxydol, etc., P&G has taken the lead in the fields of R&D, product production, market development 16

The main content of this section is from the author’s research paper "Research on Open Innovation Strategy—Taking P&G as an Example", as well as the internal materials and reports of the author’s team, such as "Procter and Gamble—Model of Open Innovation" Building an open and innovative ecology, etc.

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and brand building. And all this successful attempt, reached the culmination in the market development activities of the “heavyweight product”—Tide laundry liquid that was launched later. (2) The phase of diversification of related products (from the Second World War to about 1980). At this phase, P&G maintained a high growth rate, and its products expanded from the company’s basic products—soap, grease to many new areas, including food and beverage, oral care products, paper supplies, etc. The company has experienced rapid growth and has begun to expand overseas, successfully occupying some overseas markets. At this stage, Procter and Gamble has created a number of very successful brands in the future, such as the traditional washing products “Tide” and “Ariel”, “Jif” in the newly developed food and beverage field, paper and baby products “Pampers”, “Crest” in oral care products. (3) Phase of enhancing competitiveness and deepen globalization (1980 to present). During the development of this phase, P&G suffered a strong blockade from competitors. Some of these competitors are also from P&G’s traditional industries, such as Unilever and Henkel, and some are new competitors in the postpromotion business of P&G, such as Colgate in oral care, Kimberly-Clark, a traditional paper company, and Japanese women’s care brand KAO, etc. During this time period, P&G experienced difficulties and setbacks that had not been encountered before. Later, P&G won a place in the markets of North America, Latin America and Western Europe, and eventually successfully entered the Central and Eastern Europe and China markets. After three phases of development, P&G has grown and expanded, and its innovative products have created the first record in history: in 1879, the world’s first white ivory soap that does not hurt the skin was developed; in 1946, the first decontaminated Tide washing powder was produced; in 1955, P&G took the lead in adding fluorine to toothpaste formula to develop an anti-caries toothpaste; in 1960, the first fabric softener Downy was introduced; In 1961, the world’s first dandruff shampoo Head and Shoulders and baby diaper Pampers were introduced. It has become the core value of every P&G’s staff to meet the needs of many consumers by intimately contacting with and understanding consumers to continuously innovate products. No matter how the P&G’s business strategy changes, it is a core advantage that continues to meet the needs of consumers. It requires the company’s persistent pursuit of high-quality products, and adhere to the commitment of “continuous experiment, continuous improvement”. The development process of the famous brand Ivory has become a microcosm of P&G’s high-quality research and development. Gamble, one of the company’s founders, accepted the brand’s research and development work to find a new substance that can be added to soap and foamed. In order to find the new type of substance, Gamble conducted countless experiments, broadened his ideas, and finally found the right one. His persistent creative thinking and the spirit of open mind have set an example for the rest of the industry. Until then, this persistent spirit of innovation has recurred, especially at key points, and P&G’s persistence and

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perseverance also made it pay off. Some substances that weren’t originally traditional became the selling point of new products, or inspired the research and development of new products. In the process of research and development of cleaning fluid, P&G has developed a water purification device through analysis of water quality. At the same time, rigorous analysis is as important as persistence in innovation, which includes analysis of data, analysis of the market, and analysis of internal investigations. Before a certain product is mass-produced, P&G would do a lot of market research and simulation experiments, and regularly organize, research, and analysis all the data related to the certain product, and seek experience from success and problem from failure, and make timely adjustments to prepare for mass production. In these experiments, P&G will use real consumers as experimental objects to enhance the authenticity and reliability of the experiment. This high level of responsibility and patience with the product, and the high degree of openness and resilience to different opinions are considered to be one of P&G’s ultimate successes.

5.3.2 The Core Competence Foundation of Procter and Gamble’s Innovation Ecosystem 1. The technical elements of core competence: technology and product-led internal innovation system (1) Development and establishment of P&G’s internal innovation system P&G is one of the few companies in the world that can achieve steady growth through innovation. One of the core factors is that P&G is always consumer-oriented and can combine creativity and innovation implementation into a complete system to achieve breakthrough innovation in products. Of course, it also depends on the continuous improvement of technology and products that P&G has been established for many years, and the continuous learning of its related internal innovation system. After more than 100 years of establishment, P&G’s innovations are basically based on basic applications and appropriate branding. The technological innovation at this phase basically relies on the application of existing chemical synthesis technology in the laboratory of Cincinnati to drive the development of new products. The product types are relatively simple, and the sales model is mainly based on mass production and distribution. The greatest innovation at this phase should be to establish the concept of the brand, thus giving the product an emotional connotation that can resonate with the consumer. During the 40 years after the Second World War, P&G has successively established a product innovation platform based on the R&D center network. The innovation areas of its products are also more diverse, and focus on patented technology to protect innovation through patent application through internal research and development. Of course, not all products are launched smoothly. The launch of the women’s product brand “Rely” was good, but for various reasons, it turned sharply down in the late stage and ended terribly. However, in this process, P&G’s various functional

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departments have benefited a lot in both work practice and market operation. For example, in the R&D department, the company began to “differentiate” all branded products; develop new brands while innovating and improving technical procedures; in terms of marketing and publicity, the company has started cooperation with broadcast media and established long-term cooperative relationships with agents. In addition, the company’s human resources department also promotes the performance of employees in the factory by upgrading the personnel management system. At the same time, the company has also improved its overall management capabilities to control the company’s actions that deviate from its original intentions and the inappropriate behaviors in the globalization of commodities. Since 1980, P&G’s internal innovation system has undergone profound changes. Due to the emergence of global competitors, P&G’s traditional US-based R&Ddriven model began to balance regional innovation. Even some low-value-added product innovations were even completely moved outside the US to develop and then return to the local area, and its purpose is to further reduce costs and improve the efficiency of global innovation resource allocation. In the process, P&G made some necessary changes to some of its major products (such as Pantene, Ariel, Pampers, and Tide) to adapt to the local cultural requirements of the market. More importantly, at this stage, P&G began to reinvigorate some of the old brands that are not active, and one typical brand is Crest. Also, at this stage, P&G established its own new supply chain by establishing partnerships with major supermarket chains such as Wal-Mart, Carrefour, and Tesco. Finally, P&G successfully completed a large and complex restructuring work and became the most important industry leader in the twenty-first century. (2) Continuation of P&G’s internal innovation system In the development of any system, the unavoidable danger is that each stage is too independent, which makes the development process of the whole system incoherent. Therefore, continuity has also become an important indicator for the development of P&G innovation. P&G has always insisted on its roots in traditional products that have broad customer bases. Even if some brand-related products or medical-related products were accidentally produced, the main line of production has never been far from the tradition, and the sideline industry has a small proportion. In 1960, when many American companies began to carry out product diversification reform, P&G still insisted on vertical research and development to improve the quality of the original brand. This persistence has remained unchanged until today. P&G has the ability to self-upgrade, which can be seen in the cleaning products it produces, including soaps and detergents. By innovating the original production line, P&G has expanded a series of related technology products based on its core business and opened up new market opportunities. The new technology can be applied not only in the field of cleaning products, but also in the food-related fields of P&G. With the new production technology, P&G made the soap into a liquid form for the first time, which greatly broke through the original cleaning mode and was regarded

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as a “new product” by the industry. After that, P&G continued to develop laundry detergents, hand sanitizers and baths. Although the list of new products is constantly evolving, all products are developed around the original “homemade products”, and they have adopted the most traditional brand models, packaging models and sales models of P&G, which enhance the customer’s adaptability. At the same time, P&G has an excellent advertising innovation strategy. Through successful advertising marketing, P&G’s brand awareness has been greatly enhanced and recognized. However, in the initial stage, P&G did not recognize the role of advertising. The importance of advertising in the entire company’s innovation system was ignored, and no one paid attention to it for a long period. However, a good brand and a good product must not only have excellent product characteristics and technical foundation, but also constantly innovate technology and innovative thinking according to market requirements in the process of entering the market to fit the new needs. Later, the company gradually realized the importance of publicity and began to actively establish a complete brand image by increasing brand awareness, regularly updating and upgrading products, continuously reducing production costs and transportation costs, increasing the cost and intensity of publicity. In this process, each department acts, coordinates, and works together for the same goal. In return, P&G’s brand-related business operations during this period have also been well received by the whole industry, and to some extent become a “sample” case. Brand innovation is also an important part of P&G’s innovation system. In the course of many years of development, P&G has always established an internal innovation system based on high-quality products, while effectively maintaining the resilience and development balance of the innovation system, thereby strengthening the construction and development of its core capabilities. In fact, in P&G, the goals and tasks of the products are no different from those of other competitors, but in terms of administrative management, P&G has strong and efficient administrative management. The results of these management are mainly reflected in the long process of establishing some famous brands. The production teams of these brands gradually recognized the company’s thinking through the external management system. Under the unified thinking, they eliminated the interference and put the right idea into the production. For example, Pampers and Tide have experienced such a process. Of course, this kind of work style also have problems, such as when the initial idea is shaken or the external situation changes, many problems will become uncertain. In the development of a new product, a new type of fat was placed on hopes. The company had also increased its research and development efforts and invested in manpower and material resources, but the results of the experiment were always unsatisfactory. Although the company was reluctant to change his original intention, it still had no choice but to give up the investment and waste a lot of costs. In the history of P&G’s development, decisions at key points have fully demonstrated the company’s ability to balance. This ability is embodied in various business areas, as well as when there are conflicts between long-term and short-term

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Table 5.6 Examples of P&G’s “Innovation comes first” products P&G’s brand

Innovation for the first

Tide

The first heavy duty detergent brand

Crest

The first medically proven fluoride toothpaste brand that prevents tooth decay

Downy

The first super concentrated washing fabric softener brand

Rejoice

The first shampoo-conditioner-combined brand

H&S

The first shampoo brand that uses comfortable, effective dandruff prevention

Pampers

The first low-priced, disposable diaper brand with mass market

Bounty

The first three-dimensional tissue brand

Whisper

The first sanitary napkin brand with innovative fast-drying mesh layer

Fereze

The first fabric and air care product brand that truly removes odors from fabrics and air

Crest tooth whitening sticker

The first patented home tooth whitening technology brand

goals, and when new and old brands are in conflict. In the final analysis, contradictions always appear in the process of tradition and innovation. Making choices in contradictions and changing them according to contradictions has become a magic weapon for P&G’s response. At the core, “Excellent Choice” is the value that the company generally recognizes from top to bottom and will not change. In addition, the company has positioned itself as a “service provider who improve live quality”, and it has been widely recognized. At the same time, employees agree with the company’s adherence to the principles of behavior to improve product quality, as well as “results-oriented”—the leadership style for finding solutions. Many companies are talking about innovation, but for decades, P&G has proven its ability to consistently, reliably and successfully innovate. In the fast-moving consumer goods sector, P&G is one of the few companies that create new categories and brands, new performance standards, and user innovation. In addition, P&G has a number of “innovation for the first” in the field of fast moving consumer goods, as shown in Table 5.6. P&G’s innovation is also reflected in significantly improved productivity. Since 1980, the per capita sales of P&G employees have tripled, and the per capita net income of employees has increased by 8 times.17 The per capita sales revenue of P&G employees increased from US$363,000 in 2000 to US$585,000 in 2009 with an average annual growth rate of 6%, almost double the average per capita productivity growth rate of 3.5%18 of the largest competitor Unilever, more than twice the average annual productivity growth rate of 2.5% per annum in the United States.19 17

Annual Report 2008 of the Procter and Gamble Company. Calculated according to Unilever Annual Report and Accounts 2009. 19 Annual Report 2009 of the Procter and Gamble Company. 18

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2. Non-technical elements of core competencies: synergy between elements such as strategy and culture (1) Procter and Gamble’s innovation strategy P&G sells more than 100 brands in more than 60 countries around the world, reaching more than 500 million consumers every day. It is very challenging to implement a global strategy to match so many brands and coverage. The strategy of P&G’s trials of multiple business units that have been explored in years of practice is also difficult to change. P&G has always placed innovation at an important strategic level to coordinate and promote the effective implementation of various strategic content, so that the company can continue to grow. From the perspective of business strategy choice and development, Porter once said that companies must choose between two market strategies: innovative leaders or innovative followers. P&G chose the former—an innovative leader strategy. At the same time as the global expansion began in 1980, it continued to increase sales as its main performance target. The original North American market and brand were not enough to support P&G’s growth goal, so it began to enter emerging markets through an acquisition-based strategy, and then promoted the free market after opening the initial market to quickly occupy market share. In the initial expansion, P&G introduced a large number of mature brands in developed countries. Its technology is mature, and the basic needs of consumers in most developing countries have not yet been met. For example, in the late 1980s, the Chinese market demanded shampoos and skin care products to be clean and not to damage the skin. At that time, most domestic brands could not effectively achieve this demand from consumers. Therefore, after entering China, P&G products used existing brands to meet the basic needs of consumers. Head and Shoulders can effectively remove dandruff without hurting the scalp. Then when competitors gradually catch up on product development, P&G conducts product segmentation to meet the specific needs of consumers. Another example is that the rejoice function is to make the hair supple. Pantene is main for hair damage repair, Icahn is the main for fragrance, then P&G continues to subdivide under the main brand (such as rejoice) to meet the specific needs of consumers, as shown in Fig. 5.17.

rejoice

Green dandruff rejoice

Red enamel care rejoice

Black Shouwu moisturizing rejoice

Yellow multi-effect care rejoice

Blue light and Cyan cool moisturizing and moisturizing rejoice rejoice

Golden ginseng nourish rejoice

Fig. 5.17 Rejoice business strategy. Resource http://wenku.baidu.com/link?url=RAZCEigB_ egh5HppOqyvebq0VxfuQfrb8QOTV8fj6FQaLjI9DIO7chbHX19omzkVZWEgPSrgnnAVRjiMR zq1OG-qNf9oEsrNrLJA-_Z_qRG

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There are three main strategic objectives of P&G in 2000: the first goal is to double the growth of the industry while achieving one-and-a-half to two times the GDP growth; the second goal is to drive strong growth in total sales through innovation, while focusing on gross profit and double-digit profit growth; The third goal is to focus on organic growth and achieve long-term strategic growth through mergers and acquisitions.20 P&G’s investment in fixed assets and R&D in 2000 was huge, and the actual revenue far exceeded the expected sales. In addition, very aggressive profit targets put tremendous pressure on the company to continuously improve operational efficiency. At this time, the company hopes that the investment in R&D will help to continuously reduce costs and bring more competitive price advantages and profit margins, thereby achieving higher than double-digit profit growth. Achieving such growth goals requires more reliable business strategies and core strengths, and more importantly, turning innovation into a game changer to achieve its goals. Shareholder returns are also considered a primary measure of business strategy. From this point, it can be seen that the company values value creation more. Among them, sales performance, margin of profit and efficiency of fixed assets are the three main drivers of value growth. Based on this business goal, P&G selected three areas at the strategic level: the first strategic option is to grow the company’s core products, including clothing care, hair care, baby care and 10 global leading brands. The second strategic choice is that the company’s new product development focus shifts to faster growth, with higher gross margins and asset efficiency. The third strategic option is to win more low-income consumers, especially in fast-growing developing countries. Based on the above strategic choices, P&G is beginning to enter new areas and will understand new consumer needs to achieve new growth points. Based on this background, the innovation strategy has become an important foundation for P&G’s core capabilities and competitive advantages. For large global companies such as Procter and Gamble, the common challenge is to balance external and internal objectives. Procter and Gamble’s external goal is the company’s commitment to financial growth, and the achievement of external goals makes Procter and Gamble a leader in the industry. But companies often have internal ambitions and longer-term plans, especially in the hope of bolder innovation to encourage in-house staff passion and creative planning. Based on such a balanced consideration, Polaroid must make strategic choices to achieve internal and external goals, which are the priorities and how to do so must be very clear. Figure 5.18 illustrates the link between P&G’s core competitiveness and innovation, where innovation must be consumercentred, and the importance of strategic choices is not only to be clear about what to do but also, more importantly, what not to do. Innovation is at the centre of the strategy because it creates new consumer demand, drives product differentiation and expands new markets. Innovation strategies need to understand not only core competitiveness, but also how it is linked to innovation.

20

von Hippel [4].

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Objectives and values of motivation Challenging goals

Inspired leadership

A culture of courage and cooperation

Consumercentered innovation

Selective strategy

Unique core advantages

Reliable systems Growing organizational structure

Fig. 5.18 Relationship between P&G’s core competitiveness and innovation. Resource Lafley and Charan [5]

Procter and Gamble spends more than $200 million a year to understand consumers: who they are, what they do every day, what their expectations and needs are. For each new project, P&G spent a lot of effort on shelf market surveys and interviews at the consumer’s home. P&G has several family-style rooms on the first floor of the R&D Center in Beijing, with different renovations according to the income of Chinese consumers, each time new product R&D will invite the target consumers here to use the new product, see how they use it and get feedback. These are the ways to truly understand the real needs of consumers and to get a lot of first-hand information about product innovation. Procter and Gamble believes that products have life cycles, but there are no brands, brands like Tide and Crest have a history of more than 60 years, and 25 brands with more than $1 billion in annual sales. These powerful brands are the platforms for innovation, and innovations made on these platforms are rapidly applied to the global business community to make the commercialization process more efficient. This is why PG spends more than $8 billion a year on advertising to promote the brand’s image in the eyes of consumers. Its advertising input is almost double the average advertising input of other fast-moving industry companies. This size makes it difficult for competitors to surpass, thus maintaining the market position of P&G innovation. These brand images are also built to adapt to changing consumer groups and age structures through continuous innovation and to sociocultural developments.

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A key core advantage of Procter and Gamble is the ability to enter the market with customers and suppliers. The customer here is the end retailer. Procter and Retailer maintains a good relationship at the strategic level, combined with supply chain channels, and a holistic organizational structure ensures rapid response on a global scale and region. These partnerships work because Procter and Gamble brings consumer innovation to the heart of every partner, including retailers and suppliers. Retailer customers are Po and Gamble consumers. This shared understanding of innovation with partners has laid the groundwork for an open innovation strategy to be proposed by Procter and Gamble in the future. In support of innovation strategies and market capabilities, Procter and Gamble has built a matrix of horizontal functional units and vertical business units to implement the company’s operational strategy, as shown in Fig. 5.19. Procter and Gamble’s organizational structure extends to every region and branch in the world, creating a huge internal innovation network. Communication in each function can be freely conducted across business, functional and global networks, and innovation sharing and decision-making take place daily with the support of modern information technology. (2) Procter and Gamble’s innovative culture of core competence Since Lafley became CEO in 2000, the leadership of Procter and Gamble has been committed to innovation and corporate culture in its daily work. Lafley sought to change the conservative style of the management team in the past, recreate the culture of the company, rekindle the innovative spirit of Procter and Gamble, and eventually transform Procter and Gamble from a regulated, inward-looking company to a more open, outward-looking company. Lafley personally spoke to Polaroid’s employees, customers and suppliers for 90 to 100 days at the beginning of the term. He found a lack of guidance and direction in the behavior of his staff. “Polaroid has outstanding people who feel a lot of things to do every day, but are not sure what changes they will bring. The problem now is that Polaroid has invested too much in research and development”. Lafley said. In 2001, Lafley created a new position—Vice President of

Home Care

Oral Care

Beauty Care

···

Formula

Formula department

Formula department

Formula department

Formula department

Packaging

Packaging department

Packaging department

Packaging department

Packaging department

Craft

Craft department

Craft department

Craft department

Craft department

···

···

···

···

···

Fig. 5.19 Structure of the polaroid matrix

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Design, Innovation and Strategy, by 53-year-old Claudia B. Kotchka served. At that time, although Procter and Gamble had started to fire thousands of senior managers, middle managers, scientists and others, they had quadrupled the number of designers. Kotchka and Lafley both understand that they cannot change their culture without fresh eyes from outside. For the first time, they employ designers who have worked in other companies and other industries. To build a design infrastructure, Lafley also created what he called the Innovation Gymnasium to train managers to think with new design ideas. He also formed a design committee composed of non-Polaroid personnel to provide independent expectations and perspectives on products, brand expansion and markets. “Procter and Gamble also pays more attention to 360-degree innovation.”. According to Chief Technology Officer G. Gilbert Cloyd, this means bringing business and technical teams closer together. “When Bao and Gamble started doing this in 2001, about 20% of its ideas, products and technologies came entirely from Bao and Gamble’s outside. It rose to 35% in 2004, with the goal of 50%. This has actually been accompanied by a 20% reduction in the investment in R&D by Procter and Gamble”. The Intranet also has the “Ask Me” section, which covers more than 10,000 technicians around the world, and anyone who has questions or needs that can be raised can pass directly to people with expertise in relevant special areas. Lafley believes in the powerful role of “high technology contact” in shaping the culture within the company. “Procter and Gamble has more than 135,000 employees in about 80 countries around the world. Despite such tools as telephones, Procter and Gamble also tried to use more high-tech tools to interconnect”. Lafley is skeptical about distance learning or computer-based learning, and his style is to bring Procter and Gamble together to learn from straight line managers or project leaders. “You have to let people learn from each other together”. Lafley said, “Polaroid was in a bad habit, spent too much time putting his head in front of the computer, spent too much time sending mail to each other, and will not do so again in the future”. Unlike many CEOs that impose financial indicators on business through numbers, although each department has an annual plan, Lafley promotes a management culture that doesn’t just drive organizational development through numbers, and he keeps every manager more focused on their mission and mission. Today, within Procter and Gamble, innovation is not just the responsibility of R&D personnel. The innovation that Procter and Gamble advocates is innovation in which all members participate. Marketing brand managers, sales elites and front-line workers on production lines are innovative participants. This concept is somewhat like full-time participation in quality improvement promoted by Toyota Japan. Toyota receives millions of improvements every year from its employees, a large proportion of which have been adopted.21 Procter and Gamble’s encouragement of innovation is exemplified by the company’s support for innovation as one of the employee’s workplans in each person’s annual workplans, and its agreement that researchers spend less than 20% of their time on innovative projects decided by their own employees. Many of these innovative ideas are at the gestation stage and are far from commercialization. But bosses don’t let employees stop actually investing in innovation because of 21

Kaplinsky and Posthuma [6].

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this. Every year, the company organizes competitions for innovative seed funds, and each employee can submit his or her own innovative ideas and ways to achieve them. Approximately 5% of the proposals would have access to a seed fund of approximately $200,000 to support the testing and development costs of the next stage of thinking. Each year, Procter and Gamble has a number of successful commercialization projects that initially resulted from innovations supported by seed funds. Poly and Gamble encourages discussion and challenge of innovation, each employee can propose various strange ideas, but people will not immediately express a negative opinion, but ask “why”. By asking “why” to understand the real meaning of this innovation and to solve consumer problems, such a culture of practice greatly encourages employee enthusiasm for innovation and protects employee self-esteem for innovation. In addition, one of the important manifestations of Procter and Gamble’s innovative culture is the importance that companies attach to talent development. Procter and Gamble pursues a strict approach to talent training. It has a well-known career plan of “500 top candidates”. It is the CEO who evaluates the mission plans, strengths and weaknesses of top candidates and decides where to help them grow. The frequency of Procter and Gamble’s assessment of leadership development is once a year at the board level and three times a year in the senior management team. Procter and Gamble sees talent diversity as a source of business strategy and competitive advantage. In the 1970s, Procter and Gamble was basically an American company. Nowadays, nearly 40% of our management team is outside the United States, with the highest 35 leaders from 12 countries. One of the characteristics of the talent development of Procter and Gamble is the diversity of the talent structure. In Beijing, for example, scientists from 16 countries around the world work and discuss issues on a daily basis. And from management to general engineers, technicians from every country are scattered in every department. This diversity allows Bao and Gamble to look at issues from multiple angles and be sensitive enough to deal with risks, and to collision with innovative sparks. The same important progress has been made with regard to gender diversity, with nearly 40% of PG managers being women and their presence in management positions at every level of the company. Diversification makes the smell of treasure’s organization more sensitive and better cooperative. Equally important, it makes the leadership team more inspiring. Intellectuals need to be motivated, this is the work of business leaders, need a mix of IQ and EQ. The latter, on the other hand, is very important for a diversified enterprise with a concentration of human capital. Incentive leadership is not “good” leadership, it is not just charm, but creates conditions that inspire good employees to grasp opportunities and solve problems.

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5.3.3 Building and Development of the Innovative Ecosystem of Procter and Gamble 1. Enterprise Innovative Ecosystem Operating Model Based on Connect—Development (1) Background and operational steps for “Connect—Development” At the end of the twentieth century, as innovation became more democratic, many good ideas and ideas and solutions were no longer simply from the experimental institutions of financially powerful companies or Governments, and innovation could come from everyone everywhere.22 Traditional internal innovations have been challenged in their practical implementation. In the 1990s, most of the top 18 brands of Procter and Games’ sales fell steadily. At Procter and Gamble, the accusation of “weak innovation”, like the accusation of “poor brand management”, sounds unacceptable. For more than a century, Procter and Gamble has been proud of many innovations. Figure 5.20 is a new product developed by the internal innovation model in Procter and Gamble’s history. It is these past glory that has led the entire company to rely on and even worship the original innovation model. One of the most important principles of Procter and Gamble’s innovation is “all the answers, for me”, which is the most vivid picture of Procter and Gamble’s internal innovation model. By definition, internal innovation means that our company personnel use their own R&D facilities for “brick cement”, independently develop all required application technologies or solutions, fully own the property rights of the innovation results, and place the entire innovation process all within the enterprise. However, the internal innovation model is no longer able to meet the needs of Procter and Gamble’s development in the new situation. For the scale of operations with annual sales of more than $50 billion, it is increasingly difficult for Ambassador Ponte to maintain the original growth rate and to rely solely on internal innovation. Adhering to the “self-build, self-study, self-owned” model of internal innovation is not only costly, but can also lead to problems of unwieldy organization and poor coordination. More importantly, the effectiveness and efficiency of internal innovation cannot cope with rapidly changing markets, brutal competition and globalization trends. At the same time, as global labor costs increase and competition increases, the decline in innovation success rates leads to rising R&D costs. Lafley, then Chief Executive Officer of Procter and Gamble, mentioned that while R&D power and output are stable, innovation success rates are only about 35%. In addition to the more flexible external competitors, the profitability of Procter and Gamble continued to decline, and the market value of the stock also fell from $117 to $51. Procter and Gamble recognizes the need to find new and innovative ways. After discussion by the executive team and external consulting partners, Procter and Gamble has proposed an innovative model of “Connect—Develop”, which is to strengthen linkages across technology, disciplines, geography and business sectors in the development process to achieve the core of Procter and Gamble Integration and synergy of capabilities 22

von Hippel [4].

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Fig. 5.20 New products developed in the history of clean innovation models. Source Based on information from the Global Contact and Development website, http://www.pgconnectdevelop. com

with external innovation agents and innovative resources. Linkage—Development consists of two main stages, namely, problem-raising and problem resolution, with a detailed description of the process as shown in Fig. 5.21, as detailed in Table 5.7. The “Contact—Development” process is not rigid and static. Innovators can either accept orders to operate sequentially in accordance with established innovation projects, or proactively search for technical results and recommend them to senior levels within their duties and mandates. (2) Synergies between internal and external networks in the ecosystem support “Connect—Development” On the basis of identifying the “Linkages—Development” process steps, Po and Games’ innovative ecosystem of interaction and synergy between internal and external networks of the organization has been developed to efficiently integrate the organization’s internal and external resources through an open and eco-operational model. In terms of internal networks, the success of Procter and Gamble’s open innovation and innovative ecosystems depends to a large extent on the internal network of linkages that has matured before implementation. Procter and Gamble’s R&D institutions are independent of regional structures. For example, the R&D director at the Beijing R&D Center reports directly to the R&D president of Cincinnati. Procter

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Fig. 5.21 Contact—development mode operating process. Source Zhen [7]

and Gamble builds global R&D institutions, and the boundaries of geography are completely missing. The projects that scientists are doing every day in Beijing may be listed around the world, and the functional departments of each R&D center are closely linked. For example, the development of a new shampoo bottle, designed in Singapore, the laboratory feasibility validation of the bottle is in Beijing, while the filling transport experiment of the bottle is at the research and development center in Brussels. From design to development to implementation, the entire process of innovation is done in conjunction with powerful internal networks around the world. Procter and Gamble has a website called “Packaging Community”, where more than 500 packaging technicians around the world can share experiences, ask questions, and request technical support for projects directly. Procter and Gamble also has interdepartmental co-operative platform “shared stations”, such as Crest Toothpaste products, thanks to the internal network platform linking oral care specialists, bleach technicians and film technicians. On the external network, in 2001, when George, the Research and Development Director of Home Care, took part in the annual Household Goods Exhibition in Los Angeles, he saw a special electrostatic dust trap on an unobscured display table that made it easy to use by changing the one-off nonwovens

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of the head without having to wash the trailer every time. As soon as George realized that this could be a good opportunity for the company to enter the field of floor cleaning, he sat down and talked to the supplier and learned that the product had been developed by an Australian company and had been validated for the feasibility of mass production, which was in Guangdong Province, China. The company is looking for a brand manufacturer like Procter and Gamble for technical production cooperation. It was with the development of a corporate linkage development strategy that George quickly reported to Headquarters and signed a joint development agreement with the vendor. Because the product’s technology is mature, Procter and Gamble has only redeveloped in packaging, size and raw material selection to meet the quality Table 5.7 Summary of connect—development operating process Main stage Basic description

Step resolution

Questions

Step 1: Customer needs are always the starting point for Procter and Gamble’s innovation. For example, Procter and Gamble requires each of its business units to submit an annual, prioritized list of customer needs that will serve as a guide to Bao and Gamble’s innovation direction and focus on innovation activities this year

“Asking questions” refers to three steps for each innovation, followed by “customer needs—technical issues—technical summary” three documents, called “three in one”

Step 2: The second step of the “three in one” requires that customer needs be clearly expressed as a technical issue, such as many laundries have a high demand for cold water from cost to cost, and the innovation of Procter and Gamble has to go through a market survey to further clarify customer preferences, habits, behaviors or conditions specific requirements for this washing method—temperature zones for cold water used, etc., and summarize it as a technical issue Step 3: Technical issues are only intermediate transitions between customer needs and search conditions, and innovators need to accurately articulate technical issues into technical summaries for technical retrieval in professional technical languages, including by setting indicator constraints (continued)

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Table 5.7 (continued) Main stage Basic description

Step resolution

Solve problems

After getting the “three in one” document from the previous stage, innovators can search on the web platform based on the technical details outlined in the technical summary. A preliminary assessment of the search results is required: does the result meet the three evaluation criteria mentioned above? What are the current market outlets or consumer reviews? What is the availability of their intellectual property rights? A clear and detailed description of the technology that has passed the preliminary evaluation will be presented in a specific normative format for review

“Solving Problem” can be divided into “Discovery—Evaluation—Development” three consecutive steps

Integrated assessment by relevant business leaders, brand managers, in-house R&D personnel, including technical performance assessment and market assessment Entering the development phase through the evaluation of the technology. Negotiation between the department responsible for external business development and the holder of the technology to determine the final mode of use (purchase of technology, technical license or strategic alliance, etc.)

requirements of Procter and Gamble. In just one year, the product went smoothly on the market and the third year of annual sales exceeded $100 million. (3) Effect of Innovative Ecosystem Operations Based on Linkages—Development Since the twenty-first century, more than 50% of our innovation sources have come from outside the company, and many important innovations have come from small innovation companies, generational processing plants, individuals and university research institutes. The Open Innovation and Ecosystem Mode of Connect—Development successfully broke the organizational boundaries of Procter and Gamble and effectively established links between the external and internal sources of innovation. With external innovation, Procter and Gamble has not only greatly enhanced overall business performance, but also led it in competition with its opponents. Open innovation and eco-strategy for the promotion of external innovation, so that part of the profitable growth of Procter and Gamble comes directly from the contribution of

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compressed R&D expenditures. Although the ratio of R&D expenditure to sales has shown a trend of decreasing year by year and approaching the level of competitors, Po and Games’ profit growth has not slowed down in any way, driven by the powerful engine of external innovation, and has left competitors far behind. At the same time, the success of Procter and Gamble’s openness and connectivity to external innovation resources does not mean that enterprises should weaken their control over the innovation process, much less that they can abandon internal innovation. On the contrary, it is by consciously choosing the key links and activities of the innovation chain, leveraging the entire company’s innovation support system to keep some independent links and even the entire innovation chain running efficiently while still adhering to them to improve the control efficiency of the innovation process. Procter and Gamble’s external innovation strategy depends on the foundation of its internal innovation to be implemented effectively. While promoting the former, Procter and Gamble has never neglected the latter and has always focused on building in-house innovation capabilities in the long term and in general. After the operation of the innovative ecosystem based on “joint-development”, on average, two co-transactions are concluded each week. Through these transactions, Procter and Gamble has listed more than 200 new products, including Olay, Crest and Panting brands. Examples of typical products are shown in Fig. 5.22.

Crest toothpaste Suyijie electric spray gun Pringles

Household cleaning tool Magic sponge

SK-II mask

Metamucil capsule Charmin wet wipe

Pantene sound wave comb Olay vitamin

Tide to go instant stain Remover Stick

Crest toothpaste new package

Prilosec stomach pain medicine

Pantene fair setting Olay daily facial product cloths

PuR/Whirlpool Old Spine fridge deodorizer shaving gel

Clairol hair color selector

Mask

Olay Regenerist Visia Skin Analysis

Crest liquid toothpaste

Fig. 5.22 Example of products produced by P&G through open innovation. Source According to P&G Global Contact and Development website, http://www.pgconnectdevelop.com/

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2. Typical ecosystem models based on organizational innovation (1) Creative Collection Network In order to more effectively integrate the technologies associated with its business, Procter and Gamble has built proprietary and open networks on its original basis, which provide the implementation platform for “Connect—Develop”. A proprietary network is a network that is independently funded by Procter and Gamble and is not open to the public. (1) Networks of technology entrepreneurs. Technology entrepreneurs take the lead in organizing technology networking platforms in their regions. Currently, Procter and Gamble has established six major external networks in the US mainland, Latin America, Western Europe, China, Japan and India. Through a network of technology entrepreneurs, based on their respective specialties, Procter and Gamble can search for technical results of a different nature or function. For example, high-performance materials or low-cost production suppliers can be searched through networks located in China, while networks in India can provide results in manufacturing processes such as computer modeling. Currently, Procter and Gamble has 70 technology entrepreneurs from all over the world, and these highly qualified Procter and Gamble people use sophisticated search tools to view hundreds of millions of web pages, global patent databases, scientific literature and other data resources to navigate the ocean needles to find a major technological breakthrough that might be beneficial to the company. They create external alliances through exchanges with universities, industrial researchers, suppliers, etc., and actively bring together people from PG. To date, these technology entrepreneurs have discovered more than 10,000 products, new ideas and new technologies for Procter and Gamble, each of which has been formally assessed by Procter and Gamble. (2) Vendor network Polaroid selectively combines innovative activities in its own value chain with those of its 15 largest suppliers, and has developed an electronic platform to deliver relevant technical information and ensure real-time communication for collaborative development. Networks linked to suppliers also allow joint development in the form of interoperability. For example, if Procter and Gamble needs to develop a fragrance to maintain a lasting detergent, chemical suppliers can offer solutions. Since the creation of the supplier network, the joint innovation between Procter and Gamble and its suppliers has increased by 30%, sometimes the vendor’s R&D staff work in Procter and Gamble’s laboratories and sometimes the company’s R&D staff appear in the supplier’s laboratories. In addition, Procter and Gamble companies and suppliers will

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hold high-level meetings to exchange ideas and share results. These methods promote good relationships between PG companies and suppliers, increase the exchange of new ideas, increase understanding of capabilities among companies, and benefit PG’s innovation. An open network is a network of technology intermediaries established or joined by Procter and Gamble, open to members and the outside world. Some of the characteristics are: ● NineSigma. NineSigma is a wide range of independent intermediaries, developing its own network linking network members (technology demand side) to various third-party research institutions (technology supply side). The technology demand side may, through the intermediary, provide technical advice or tender within the network, and third-party research institutions that receive the technical summary will then provide feedback to the demand side through the intermediary if the corresponding solution is available. Through this intermediary, Procter and Gamble distributed technical summaries of help to 700,000 people, resulting in over 100 projects, 45% of which led to the conclusion of a deep cooperation agreement. ● InnoCentive. This is a subsidiary of Lili Corporation in the United States, which operates essentially in line with the NineSigma network and focuses on a relatively narrow area of specialization—fine chemicals. It connects more than 70,000 contracted scientists and engineers with diverse identities, backgrounds and expertise. One third of the technical issues that Procter and Gamble released through it were resolved. ● YourEncore. It employs retired scientists or engineers who have previously served in some prestigious companies and have advanced expertise in professional research to serve the demand side of technology. For example, retired engineers from Boeing, who are highly qualified in aircraft virtual design, have the potential to contribute invaluable experience to the virtual design of prototypes. ● Yet2.com. In 2000, Procter and Gamble joined Fortune 100 as one of the initial investors in Yet2.com. Unlike NineSigma and InnoCentive, which are online markets for IP transactions, Yet2.com specializes in technology exchange for matchmaking between companies, universities and government laboratories. If a network member is interested in the technology, then Yet2.com arranges direct consultations between the two parties. With Yet2.Com, Procter and Gamble has acquired some patents and has applied them to its core business. (2) Creative Executing Agency (1) Independent Innovation Team, or Future Works. The Future Works division of Bao Gamble is an organization led by a general manager and a group of disciplines whose main objective is to find innovative opportunities to generate new consumption and to create new businesses on this basis. Unlike the innovation teams that exist in each business unit, Future Works is not subject to established regulations. Instead, it explores some of the sudden fantastic ideas that may create a new class or department, envelope the close path of the existing class,

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or create a business associated with the existing business. These ideas include new business models and partnerships, such as the joint venture between Procter and Gamble and the Swiss Precision Diagnostics to produce health diagnostic products for consumers to use at home. Importantly, while Future Works is an independent organization separate from each business unit, the innovations it makes do not fall into Utopia. At the start of each of the Future Works projects, sponsor business units are identified to provide results-based business input in advance. More importantly, after Future Works proves that the original concepts and prototypes it created meet the requirements, the entire commercialization phase of the innovation project is the responsibility of the “sponsors” themselves. This role is critical, and after initial creative and product prototyping assessments, sponsors can provide a “home” and a “incubator” for subversive innovation. For example, the exploratory study of family health diagnoses is the responsibility of future works and the subsequent management is the responsibility of the health business unit. (2) New Business Development Group in Business Module (new business development, NBD). NBD is another organizational structure that promotes innovation for Procter and Gamble. NBD focuses on incremental and subversive innovations in a particular category, such as laundry, home or skin care. The innovations they lead are often based entirely on new ideas, products and technologies developed within the business, as the Downy Single Rinse fabric softener was invented. Innovations implemented by NBD can also be partly or wholly external. For example, Mr. NBD Group, led by Procter and Gamble’s Home Care. Clean’s magic eraser is a new product based on a product sold in Japan and sponge foaming technology developed by BASF. NBD projects are mainly funded by a specific business unit. Innovative project teams rooted in mature sectors and brand businesses focus on a series of incremental innovations and business concept innovations to better serve the needs of existing customers. Innovative products such as the Magnolia Oil Multi-Effect Care Series, the Nascent Skin Collection, and the Focus White Series are directly in the hands of the Magnolia Oil Business Group. Most of the long-term, incremental innovation of Procter and Gamble comes from within the business unit, as part of their responsibility. (3) Innovative “broker”, or external business development (EBD). EBD intervenes in all business units, leads the entire transaction processing process and helps identify and close transactions with external parties. EBD facilitates the flow of appropriate ideas by actively searching for and evaluating innovation points from the outside, then introducing appropriate innovation points and recommending them to the right business units within the organization. For innovative projects with relatively low risk, EBD distributes them to business units, while those with higher risk are assigned to Future Works. (4) Innovative hot zone. In addition to the innovative organizations in the above companies, Procter and Gamble also has many innovative hot spots around the world, each innovation center has a variety of environment for simulating home

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shopping and shop shopping, which can be used to identify and form good ideas, the purpose of which is to test ideas from a consumer perspective. (3) Innovative External Linkages Outside the company, Procter and Gamble maintains partnerships with over 400 national laboratories, universities and research institutions, retailers, manufacturers and even competitors through collaborative development, technology M&A funds, patent IP authorizations and donations. The long list includes Duke University, Columbia University, BASF, GE, Whitehall, Gao Lujie, Unilever, Hewlett-Packard, 3 M, Disney, Wal-Mart and other institutions and companies. Figure 5.23 provides a diagram of external innovation organizations working with Procter and Gamble. It is sometimes very important for PG companies that have more than 300 brands around the world and need continuous growth opportunities. For example, while they were looking around for an anti-wrinkle formula for cornoline oil, at a technical conference in Europe, the underneath-stage scientists heard that Sederma, France, was introducing a brand-new peptide compound that promoted cell regeneration and wound healing. They realized that this was probably the key technology that PG needed. Later, a series of tests proved that things were working, so PG bought the patent and developed the popular Jade Oil New Skin Collection. Table 5.8 lists typical products and technologies built on external connections and their success stories. Supplier Academic research institution

Competitor Retailer Consumer

Manufacturer Fig. 5.23 An external innovation organization working with Procter and Gamble. Source According to P&G Global Contact and Development website, http://www.pgconnectdevelop.com/

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Table 5.8 Typical products and technologies supported by Poly and Gamble external connection systems Typical products and technologies

Basic description

Pringles® Stix—a favorite Japanese product for North American consumers

Procter and Gamble discovered a food that was very popular with consumers, and in cooperation with a large Japanese food company, it launched a wheat bar in the North American market. This is an excellent flavor of food made of baking, no fried process, close to tastes of potato chips. Tasting the wheat stick is an irresistible experience of happiness. Procter and Gamble partners offer products, manufacturing technologies and innovative channels, while Procter and Gamble offers trademarks and distributes and markets

Reliability technology—proprietary solutions and breakthrough thinking models to improve manufacturing processes and capital efficiency

Reliability technology is a proprietary set of tools and workflows created by Procter and Gamble and a breakthrough that can be used to drive asset utilization, productivity, and proactive responsiveness. Reliability technology, developed jointly with the Los Alamos National Laboratory, has been deployed to more than 150 institutions around the world, saving more than $1 billion a year. Procter and Gamble has licensed this technology for use abroad 10 years ago, adapting the entire set of technologies to meet the needs of enterprises, giving them important direct support. Procter and Gamble’s customers are also constantly finding that the speed of product listing has increased, costs have decreased, productivity has increased, and profits have increased by 2.5 percentage points. One customer expects to save $500 million a year

Glad® Joint Venture—joint venture Procter and Gamble discovered promising plastic film technology when studying diaper products, which was the with competitors beginning of Glad Press’n Sea. Despite the success of the market test, Procter and Gamble’s strategy is not to be a new entry in this mature industry. Instead, the “Connect—Develop” strategy led to the formation of a joint venture with Clorox, one of the largest competitors of Procter and Gamble. Galaxy already has a strong brand value and a leading plastic film technology (Glad). Procter and Gamble contributed its global marketing experience, provided Glad Press’n Sea’s intellectual property rights and contributed to innovation, including the successful development of innovative Glad ForceFlex garbage bag technology. Clorox contributes to brand value, plastics and resin development, manufacturing and sales of new plastic film products. The Glad Joint Venture continues to collaborate with Gaulle in the plastic film business. All this proves that competitors can work together to achieve mutual trust and success

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(4) Innovation House Mode In 2007, Procter and Gamble established its own Open Innovation Center—Innovation House (Israel house of innovation, IHI) in Israel. The mission of the Innovation House is to take full advantage of Israel’s innovative resources and culture to accelerate its global innovation through cooperation with Israeli academic institutions, private enterprises, venture capital agencies and government agencies. For example, in September 2011, through the Technology Transfer Office of Hebrew University, Po and Gamble Innovation House and Hebrew University signed a cooperation agreement to allow Po and Gamble researchers and Hebrew University to establish a higher level of cooperation, including the promotion of cutting-edge innovations in the areas of biology, chemistry, glue and surface science. This helps enhance our global product innovation capabilities and create more innovative products that help improve human lives.23 In partner recognition development, starting with a focus on existing partners, or partners with relative familiarity, there is no need for tools and methodologies. As open innovation grows, new partners need to be continuously developed and new methodological tools introduced, such as creative collection tools or platforms, ensuring that creative ideas submitted by innovators are secure, and creating dedicated departments, such as Akzu Nobel, which assigns specific teams to creative search. For mature, open and innovative enterprises, a variety of innovative tools and processes are used to meet different innovation needs. The key here is a change in perceptions that can be directed towards innovative opportunities and new partners. For innovative resources or partner search tools or channels, companies can organize specialists responsible for intelligence gathering and analysis, documentation retrieval and academic tracking, as well as participation in forums, exhibitions and conferences, online professional and social communities, as well as recommendations from existing partners, and so on, or through their own innovative platforms, such as HOPE, Hale’s open innovation platform, develop “platforms, etc., or through third-party professional innovative service providers such as NineSigma. You can also organize creative, innovative or entrepreneurial contestants for specific topics, such as Generic Electric, which has sought creative solutions for the “Green Ideas” strategy in a creative way, seeking solutions to challenging issues in energy, transportation, water, health and lighting from around the globe, and giving excellent programs some cash incentives and possible collaborative development opportunities. The Harvard Medical School, for its part, used this open innovation model in its traditional academic activities to organize a “creative competition” for diabetes research for teachers and students throughout the school in 2010, which resulted in 12 successful programs, which became a follow-up research project for the research team. The key to the partner selection process is to balance the breadth and depth of the partnership, that is, whether to reach the largest partner or to deepen the partnership with limited partners. Many companies aim to build deep strategic partnerships with partners that not only provide creative and technical resources, but also maintain 23

Manceau et al. [8].

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in-depth relationships in the medium to long term, not just one or more innovations. This approach is popular for cooperation in R&D, but it clearly limits the number and scope of partners. Businesses can start with a wide network of partners and then choose a few to develop in-depth strategic partnerships.

5.3.4 Case Summary Through the construction of technology-and product-led systems of innovation within enterprises, and the synergy between strategic and cultural factors, PG has focused on building its core capabilities, building and developing an innovative ecosystem based on “Connect-Develop” innovative ecosystem operating models, as well as creative collection networks, creative implementing agencies, innovative external linkages, “innovative house” models, etc. Heterogeneous eco-partners, such as research institutes, suppliers, governments, consumers, universities and other structures, integrate their common interests into their own innovative ecosystems, create interlinkages with ecosystem actors, such as mutual benefit and flexible competition, and achieve their own core-based innovation ecosystem’s adaptation and matching to the external competitive environment, leading to the strength of their continued competitive advantage.

5.3.5 Microsoft Corporation Introduction and Development24 Microsoft is a US-based, multinational computer technology company that pioneered the development of PC software worldwide, founded in 1975 by Bill Gates and Paul Allen, with its headquarters in Redmond, Washington. With a focus on R&D, manufacturing, licensing and providing a wide range of computer software services, Microsoft’s most famous and best-selling products are Microsoft Windows Operating Systems and Microsoft Office Series software, currently the world’s largest computer software provider. Microsoft ranked 104th in the world top 500 rankings in 2014, with turnover of $77,849 million and profit of $16,978 million. Bill Gates dropped out of Harvard University in 1975 and sold BASIC with his high school alumni Paul Allen. Bill Gates and Paul Allen subsequently moved to Albuquerque and created Microsoft in a local hotel room. In 1979, MITS closed down and Microsoft continued to develop its main business with the modification of BASIC programs. With the rapid improvement of Microsoft BASIC’s decoder, manufacturers have introduced Microsoft BASIC syntax and other features to ensure compatibility with existing Microsoft products. As a result of this cycle, Microsoft BASIC has gradually become a recognized market standard and companies have gradually taken over the entire market. In 1980, IBM selected Microsoft to write critical operating system software 24

Microsoft’s introduction and development content from: Chen [9].

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for its new PC, a major turning point in Microsoft’s development. By 1984, Microsoft had sold more than $100 million. Microsoft then continued to develop software for IBM, Apple and Radio Equipment. But as Microsoft grows, Microsoft and IBM have become competitors in many ways. In the mid-1990s, Microsoft began to expand its product line into the computer network area and continued to launch the online service MSN, acquiring a network application company. On July 29, 2009, Yahoo and Microsoft announced that they had reached an agreement on cooperation in Internet search and online advertising business, stipulating that the Yahoo website would use the new “Bing” search engine launched by Microsoft and that Microsoft would obtain a 10-year exclusive license for Yahoo Core Search technology, while Yahoo would be responsible for selling search ads for both companies worldwide. On July 31, 2012, Microsoft replaced the Consumer Web version of Hotmail with Extended Outlook. Outlook is generally used in enterprises. On 3 September 2013, Microsoft announced that it would acquire a license of 5,440 million euros (approximately $7.17 billion) for the Nokia mobile phone business and its large patent portfolio, of which 3,790 million euros would be used for the acquisition of Nokia equipment and services. Microsoft began to move from software to hardware. As one of the world’s most renowned high-tech innovation companies, Microsoft has experienced 10 milestones over 40 years of development, leading to Microsoft’s continuous transformation and development, summarized in Table 5.9.

5.3.6 The Core Competency Base of Microsoft’s Innovative Ecosystem Microsoft’s core competencies derive from a combination of superior operating systems, application software and hardware “operating system + hardware”. Built with exceptional technology leadership and application systems, Microsoft is for PC systems, DOS operating systems, Windows operating systems, Windows RT, Windows Azure, mobile systems, Windows Phone (Internet Explore, Microsoft Office, Windows Media Player, Bing, etc. (above for applications), Portable Media Player, Xbox 360, Surface, etc. (above for hardware), enabling the company to almost monopolize the global industry core competencies. 1. Performance of Core Competency One: Typical Products for Microsoft Operating Systems The operating system is a key part of Microsoft’s core capabilities. Through the creation of multi-year core capabilities, Microsoft has developed a diverse product range that is continually iterated from generation to generation, optimized for technology, performance and experience, mainly related to computer systems, DOS operating systems, Windows operating systems, Windows RT, Windows Azure, mobile systems, Windows Phone, etc. First, DOS is the core operating system product for Microsoft’s global market operations before Windows was launched, and is the main product of Microsoft’s

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Table 5.9 Milestones in Microsoft development Event name

Specific description

Create Microsoft

Bill Gates and Paul Allen jointly founded Microsoft in 1975. In the same year, Gates and Allen saw a presentation on Altair 8800 computers in the American Popular Electronics magazine, believing that there was an opportunity to develop a BASIC program for the system, and both quickly began to develop, create Microsoft

Development of DOS

MS-DOS is the most important business for Microsoft’s early success. Developed primarily by Microsoft, the operating system provides a command line interface that allows users to operate on a range of IBM-designed PCs. MS-DOS opens up a new world for those who want to get more features from their PC and provides a platform for IBM to develop PC hardware business. In the end, Windows replaced MS-DOS, but the latter remained in another form until it officially withdrew from the market in 2000

Publishing Office System

Microsoft Works is a precursor to Office. It is an application that integrates programs like Word and Excel in Windows. Works was a popular product in the mid-1980s until Microsoft launched Office in 1989. Unlike Works, Office is basically a combination of different applications, including Word, Excel, and more, providing productivity solutions for individuals and businesses. Office was sought after its launch and became Microsoft’s most profitable product to date

Windows gives the PC a graphical user interface

Unlike MS-DOS, Windows provides a graphical user interface that allows users to easily control the operating system and makes it easier for ordinary, “non-technical streaming” users to accept PCs. The explosive growth of the Windows ecosystem benefited from Windows 95, which was subsequently replaced by another mainstream system, Windows 98. Windows once controlled over 90% of the world’s PC market

Development IE

Windows 95 was actually launched without a web browser. But with the growing popularity of the Internet, Microsoft developed Internet Explorer (IE). Binding IE to Windows has proven to be an important step in the history of Microsoft Browser. IE continues to dominate the browser market until government regulators intervene to change this pattern. Today, IE is about to retire in Windows 10, replaced by a new browser Spartan

Repression by the government

In 2000, Microsoft was accused of “abuse of market dominance” in the United States and was ordered to split into two companies. However, another court subsequently reversed part of the decision, allowing Microsoft to continue operating as a full company. In the EU, Microsoft is not forced to split, but is required to provide multiple browser options to users in the system. This requirement in the EU led to a rapid decline in Microsoft’s browser share in Europe and generated hundreds of millions of dollars in tickets (continued)

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Table 5.9 (continued) Event name

Specific description

Ballmer takes over CEO

Steve Ballmer joined Microsoft in 1980 and was appointed CEO in January 2000. Although Ballmer has long played an important role in Microsoft before becoming a CEO, Gates as a CEO has always held firm control over the company

Undervalued Apple, Google

Microsoft’s biggest mistake is likely to be the failure to foresee the growth of the Internet, the tremendous success of Google Search Engine marketing and the explosive growth of Apple’s iPhone-led mobile computing. By the end of the first decade of the twenty-first century, Microsoft is lagging far behind in search, advertising and mobile, and is still catching up

New CEO Nadella

Microsoft unexpectedly announced Ballmer’s resignation from CEO in 2013. Microsoft spent almost a year looking for a successor, culminating in the appointment of Satya Nadella as the company’s third CEO in February 2014. Nadella’s appointment represents a major shift in Microsoft, releasing a clear signal that Microsoft wants to move away from traditional ideas and introduce new thinking

Transform to Mobile, Cloud Services

Nadella’s new strategy means Microsoft is changing its position on the future. Microsoft may still rely on software to survive, but mobile, cloud and services will dominate the future—a major shift in Microsoft’s business model that will significantly change Microsoft’s future revenue generation. Microsoft has been a software company for decades, and now Microsoft is a cloud and service company

Resource http://tech.ifeng.com/a/20150408/41043637_0.shtml

early core capabilities. The DOS system is essentially a command interface that paved the way for the development of the PC operating system and is the basis for Microsoft’s innovative development of the Windows system. Prior to Windows, the DOS system also brought Microsoft a competitive gain from a market monopoly and stepped out of the market arena after Windows was developed. Second, the PC-based Windows system. Since 1995, Microsoft has launched nine products, including Windows 95, Windows 98 and Windows XP, as shown in Fig. 5.24. Through continuous improvement in the speed and efficiency of central processor operation, continuous improvement in hard disk operation and storage capacity, and continuous optimization of computer design and user systems, Microsoft’s computer system family accounts for more than 90% of the global PC operating system market. Windows systems are also an important system platform for Microsoft hardware and software connectivity, embedded in Microsoft representative software products such as the Microsoft edge browser, Skype communications, Windows Search (search), Windows Defender (system protection and antivirus), thus realizing the operating system against hardware software entities and emptiness. The proposed support increases the value output of the product.

5.3 The Case of Procter and Gamble Company

Windows98

Windows2000

243

Windows Viata

Windows 8

Windows series

Windows95

Windows Me

Windows XP

Windows7

Windows10

Fig. 5.24 Developments in Microsoft Windows OS products

Again, based on Windows Azure system products, the third generation of Microsoft operating system products launched after two generations of DOS and Windows-leading system products, the core purpose of which is to transform Microsoft PC Windows systems to the Internet cloud by building a cloud computing platform on the Internet platform through system tracking for Microsoft users.25 Finally, Windows Phone, a mobile system product, is the third core module developed by Microsoft outside of PC operating systems, personal and corporate cloud computing systems, with the iterative evolution of its core products as shown in Fig. 5.25. Based on the development and technology build-up of Windows Phone, Microsoft and Nokia further entered into a global strategic partnership agreement in 2011 to build Microsoft’s innovative ecosystem with Nokia based on Windows Phone to optimize Windows Phone’s hardware performance, embedded software, core component composition, and appearance materials. For example, the Windows Phone 8 family is the world’s first mobile product that supports dual-core CPUs and is internationally leading in the performance of mobile processors and operating systems. At the same time, typical Windows Phone products such as Lumia 920, Lumia 830, Lumia 820 and others are based on the Gao Tong Dual-Core Processor, optimization of photography and camera technology (1280 × 768 pixels in resolution, 8.7 million-pixel CZEISS certified camera, plus second-generation Pure Purew photography technology26 ) and configuration of wireless charging, long standby time performance to achieve Microsoft’s core capabilities in the mobile phone market. 2. Core Competency Performance II: Microsoft Application Software Products and Hardware Devices The second aspect of Microsoft’s core competencies stems from the superiority of application software products and the near monopoly of market competitiveness, 25

http://baike.baidu.com/link?url=-p4RXx1h395z5-fqNT9InH6yVq8pQMhXw1NoZvhrIKDE KUSHmODfYa0AdfpAKr6WznpW3HkHkoqrkimrIfzvNUMK32mV30PigkGUeLRz-Aq. 26 http://baike.baidu.com/view/8355184.htm?fromtitle=Lumia+920&fromid=2699209&typ e=syn.

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Fig. 5.25 Developments in Microsoft Windows Phone products

which consists mainly of core software products such as Internet Explorer, Microsoft Office software, and Windows Media Player. First, as the software product with the most complete online search capabilities, market share and user viscosity, IE is a web browser launched by Microsoft for worldwide user promotion and use. Its products have undergone a continuous investment in Microsoft’s resources, from the initial patented web browser Spyglass’ authorization to innovation in Internet Explorer. Based on Microsoft’s powerful operating system, Microsoft implements the browser and operating system bundling strategy and focuses on the technical improvements and Internet experience optimization of the Internet browser, which enables the Internet browser to demonstrate strong market competitiveness and user viscosity when dealing with many competitors such as Firefox, Google Chrome, OppenOpera, Baidu and Safari. Second, Microsoft Office software. Microsoft Office Software is an office software developed by Microsoft Technology for individuals and organizations that includes Word software for document processing, Excel software for table storage and data computing, PowerPoint for job reporting and presentation software, Office Outlook software for mail applications and management, and more. The proprietary and convenient nature of its products, as well as modular optimization and iterative innovation for software functionality, forming the backbone of Microsoft’s core competitive advantage. Third, Windows Media Player. Windows Media Player is another major product in Microsoft software applications for handling and playing audio and video for users. Microsoft has built its own operating system-based audio and video playback software embedded through continuous product development and continuous improvement of the Windows Media Player integration environment, thus robbing the user market and creating a core competitiveness. Fourth, in addition to core software products such as IE browsers, Office software, Windows Media Player, etc., Microsoft also strengthens the core capabilities of the company’s core hardware products to achieve competitiveness in core hardware products such as portable media playback devices, Xbox series, Surface series, etc., summarized in Table 5.10 shown.

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Table 5.10 Examples and introduction of Microsoft core hardware products Core hardware products

Introduction

Portable media playback equipment

Microsoft’s advanced audio and video hardware playback devices for game downloads, PC and mobile app downloads, and simultaneous processing of audio, video, images and documents

Xbox series Focus on the hardware of video games, players can freely download games according to their preferences. In addition, Xbox-Series hardware devices enable timing of game time, allowing parents to control playtime flexibly Surface series

He Surface series is a tablet developed by Microsoft to meet the needs of the Surface series for portable office, book reading, web browsing and other functions

Resource https://www.microsoft.com/en-us/

5.3.7 Building and Development of Microsoft’s Innovative Ecosystem 1. Global Research Innovation Ecosystem Based on the Academy Platform From its inception, Microsoft has emphasized the development of the company’s R&D capabilities and has achieved a long-term competitive monopoly on core products based on research and development leading technologies. With the growth of the enterprise, Microsoft is gradually setting up a global innovation ecosystem with the Institute as the platform to better integrate global R&D resources and create a global R&D innovation ecosystem based on the company’s R&D capability system, covering R&D production industry chain to achieve the synergy of all-eco R&D resources. Based on this strategic layout, Microsoft coordinated global resources with the company at its core and established 11 facilities comprising the Microsoft Institute of Research, the FUSE Laboratory, the Microsoft New England Institute, the European Advanced Technology Laboratory, the Microsoft Redmond Institute, the Microsoft Cambridge Institute, the Cairo Advanced Technology Laboratory, the Microsoft Asia Institute, the Microsoft India Institute, the Microsoft New York Institute and the Israeli Advanced Technology Laboratory. The composition of the Academy platform is based on a star-based global research innovation ecosystem, as shown in Fig. 5.26. Table 5.11 provides a systematic overview of the composition and functions of this innovative ecosystem. 2. Partner model for the participation of heterogeneous subjects27 For 30 years, Microsoft has grown together with the entire industry. One of the manifestations of the Microsoft ecosystem is the partnership model. Microsoft works with its partners to deliver superior software products and solutions that meet the needs 27

Chen [1].

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5 Corporate Innovation Ecosystem Based on Core Competence Case … Microsoft Institute Israel Advanced Technology Laboratory

FUSE Laboratory

Microsoft New York Institute

Microsoft New England Institute of Research

Microsoft

European Advanced Technology Laboratory

Microsoft Institute of India Microsoft Redmond Institute

Microsoft Asia Institute

Cairo Advanced Technology Laboratory

Microsoft Cambridge Research Institute

Fig. 5.26 Innovative ecosystems for global research by Microsoft star

of customers and markets and help businesses and individuals realize their potential. Whether hardware manufacturers, software vendors, service providers or channel vendors, they are all built into Microsoft’s ecosystem, and they are bound to depend on each other. In a harmonious IT environment, many hardware manufacturers, software developers, and solution providers will combine resources, complementarities, and win–win cooperation in a fair and open industrial environment. Microsoft’s ecosystem brings technological innovation and experience to development everywhere, while increasing employment opportunities and tax revenues, making its own efforts to promote economic development and industrial prosperity everywhere. Microsoft constantly brings the latest products and technologies to its users and shares its resources and experience globally with domestic partners. At the same time, Microsoft is actively working with the government to create new business opportunities for harmonious development and industrial upgrading of the IT ecosystem, in collaboration with a wide range of partners. For more than two years, Microsoft China Technology has been sharing leading international technology and ideas with industry partners. Microsoft today has grown from a small company at the time to a powerful industrial ecosystem, moving forward with partners. Currently, Microsoft has over 640,000 partners worldwide and is one of the world’s most dynamic and diverse manufacturers. At the same time, Microsoft has completed more than 300 cooperation projects with over 200 partners active in software, hardware, solutions and other areas in China, which is recognized by the industry as “the most critical technology interface in China’s IT industry chain”… In order to contribute more deeply to the construction and development of information in various places, Microsoft has worked with governments to establish 11 Microsoft technology centers in various places, which have become public platforms for information security, application research, development, service and talent development in various places. According

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Table 5.11 Microsoft global research innovation ecosystem component summary Name of the institute Date and place of establishment

Basic description

Microsoft Redmond Institute

The Microsoft Raymond Institute focuses on computational theory, machine learning, and safety and privacy as the core work of the Microsoft Product Team

1991/Redmond, Washington, USA

Microsoft 1997/Cambridge, Cambridge Research United Kingdom Institute

The Microsoft Cambridge Institute is directed to basic computer science research in the fields of machine learning, security, information retrieval, etc. The Academy works closely with Cambridge University and Cambridge University Computer Laboratory

Microsoft Asia Institute

1998/Beijing, China

Microsoft Asia Research Institute is the core research institution in Microsoft Asia Pacific and the largest outside of the United States for all Microsoft research institutions. The Academy has introduced expert scholars from all over the world and has become a world-class computer science research institute with an emphasis on improving the human computer experience

Microsoft Institute of India

2005/Bangalore, India

The Microsoft Institute of India conducts long-term basic and applied research in areas such as cryptography, security and algorithms; digital geography; mobility, networks and systems; multilingual systems; software engineering; emerging market technologies; and so on. In addition, the Microsoft Institute of India collaborates with research institutions and universities in India and abroad to support scientific and technological progress and innovation

Microsoft New England Institute of Research

2008/Cambridge, Massachusetts, USA

Microsoft’s New England Institute conducts research into emerging interdisciplinary areas and works with global institutions to focus primarily on computer science and social sciences, trying to understand, design and deliver future computing and online experiences

Microsoft New York 2012/New York City, Institute NY

Microsoft New York Research Institute collaborates with academia and other Microsoft research institutes to promote cutting-edge development in computational and behavioral social sciences, computational economics and predictive markets, machine learning and information retrieval (continued)

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Table 5.11 (continued) Name of the institute Date and place of establishment

Basic description

European Advanced Technology Laboratory

2003/Munich, Germany

The European Advanced Technology Laboratory works closely with European industry to incubate, validate and deliver technologies that can deliver effects in the short term. Laboratory efforts focus on computer systems and networks, machine learning, hardware and equipment, etc

Microsoft Institute

2005/Santa Barbara, California, USA

The Microsoft Institute is located in the campus of the University of California at Santa Barbara, USA, and focuses on exploring theoretical and experimental methods to create quantum simulations of traditional Bitts. Leader of the group—renowned mathematician Michael Freedman, who received the highest award in mathematics—Fields Prize

Cairo Advanced Technology Laboratory

2006/Cairo, Egypt

The Cairo Advanced Technology Laboratory is an applied research laboratory that focuses on natural languages, information retrieval and mobile multimedia technologies for exploration and incubation. The laboratory works with leading research institutions in Egypt and the Middle East to establish joint applied research projects and focus on new technologies that improve the Internet usage experience in the region

FUSE Laboratory

2009/Raymond, Washington, USA

FUSE is a combination of three independent R&D teams (Innovation Systems Group, Startup Lab, and Wealthy Media Lab), an application R&D team dedicated to designing, developing and distributing applications and services to provide a new social, real-time, rich media experience for people’s work and lives to help users gain critical information and ideas

Israel Advanced Technology Laboratory

2011/Israel Jowzia

The Advanced Technology Laboratory in Israel is a unique team of engineers, researchers and user experience designers focused on providing new ways to interact, explore and enhance the online experience. The lab works with product and research teams to develop, develop and implement new technologies and solutions for online services, computer vision, natural user interfaces and social data mining

Resource http://www.msra.cn/zh-cn/about/globalsystem.aspx

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to statistics, more than 40% of employment and taxation in Asia’s IT industry (equivalent to more than $9.8 billion) comes from the “Microsoft ecosystem”, which is made up of Microsoft and a wide range of partners. Microsoft earns $8 to $16 for every dollar Microsoft earns. 3. Cloud-based innovation ecosystem28 Microsoft, as a platform manufacturer and relying on open strategy, has built a platform that, in partnership with partners, provides customers with an environment that can be applied immediately. In recent years, as the industry matures and diversifies, Microsoft has increased its openness to the basic strategic level of the company, actively seeking cooperation with the industry as a whole, and promoted cooperation between different platforms by increasing product openness and sharing more technical information., bringing more opportunities and choices to industry, customers and partners. In the age of the Internet, as a cloud computing and mobile connected company, Microsoft will continue to start new ecosystems while continuing its original ecosystem. As the world’s leading provider of technology, products, and solutions, Microsoft has extensive experience in providing cloud services and has nearly 15 years of experience in cloud computing. From Hotmail to Windows Update to Xbox Live, Microsoft operates the world’s largest cloud service. At the same time, Microsoft has the most comprehensive enterpriseclass cloud computing products, technology and infrastructure, and is committed to building a cloud ecosystem that helps businesses reduce IT infrastructure inputs to focus on core business R&D through technology such as Windows Azure Cloud Computing Platform and Hyper-V. Windows Azure provides universal platform as a service, PaaS, to provide developers with a wide range of services that enable them to focus on the infrastructure or virtual machines in the application rather than the underlying layers, with the basic operating model shown in Fig. 5.27. With Windows Azure, IT professionals can easily have all the IT infrastructure, hardware, operating systems and tools they need to support their applications, while developers can develop powerful, popular apps on Windows Azure. Apps that are now available to independent software developers can operate in Microsoft’s virtual machine environment, showcase them in the cloud, and even help these operators explore new clouds. In order to ensure the motivation of these independent software developers, Microsoft has done a series of work that provides developers with many new profitable opportunities. For example, in the service model with customers, Microsoft helps them innovate. Microsoft itself launched Windows Store, which is an open store designed also to help partners to make profits. To attract developers, Microsoft announced that early Windows 8 developers would receive a 70% share of proceeds and 80% when software sales reached $25,000. Microsoft builds cloud accelerators based on Windows Azure technology. The Cloud Accelerator is designed to penetrate the entrepreneurial eco-chain in China,

28

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Facebook Identity

All-round, one-stop cloud platform

Providers

PC ISV Partners

Database

Developers Mobile and Hololens Publishing Platforms

Blob Storage Text Information

Mobile Services

Bot system

Data

Windows Azure Services

Fig. 5.27 Schematic diagram of Microsoft Windows Azure Services ecosystem operation. Source Microsoft Microsoft Azure official website: https://www.azure.cn/?wt.mc_id=AID529461_SEM_ EMT-MSFT_EN_CEAzure_China_Search-Baidu0247

encourage more entrepreneurs to use Microsoft Cloud Computing Platform for technology development and innovation, and provide businesses with multi-pronged entrepreneurial support resources to help them realize their dreams. The Microsoft Cloud Accelerator itself forms an entrepreneurial eco-circle: startups first have access to the many resources they need, and their feedback contributes to the upgrading and improvement of the eco-circle of Windows Azure. Second, the cloud accelerator is an integral part of Microsoft’s entire ecosystem, and when Windows Azure becomes the core platform for stringing Microsoft’s businesses, the cloud accelerator also spans across Microsoft’s interior, accelerating the process of integrating Microsoft’s internal resources while looking for resources to support startups.

5.3.8 Case Summary Microsoft is a global high-tech innovation company. Driven by core technologies and R&D, Microsoft has built a core product system based on “operating system + hardware and software” and built the company’s core competitiveness based on its high market share. At the same time, based on the core competitiveness, Microsoft has built a global research and innovation ecosystem based on the research platform based on the core product system, and implemented a heterogeneous partner participation model and a cloud service-based innovation ecosystem model. Adapt to the changes

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of global industry and environment, and realize the combination of the company’s core products and innovation ecosystem model to support the sustainable competitive advantage, thus winning the market competition.

5.4 Google Case 5.4.1 Google Company Introduction and Development29 Google is a multinational technology company in the United States that develops and delivers a wide range of Internet-based products and services in areas such as Internet search, cloud computing, advertising technology, and more. Founded in 1998, the company was founded by Larry Page, Sergey Brin. In 1998, Page and Brin jointly developed a new online search engine in student dormitories at Stanford University in the United States, which was quickly disseminated to information searchers worldwide, and founded Google on 7 September 1998 in Mountain View, California, United States, to design and manage an Internet search engine. Google’s mission is to integrate global information so that everyone can access and benefit from it. Google is recognized as the world’s largest search engine and one of the five most popular websites on the Internet, with numerous users worldwide. At the same time, Google is the world’s most innovative high-tech company. In 2016, Townsend Reuters Intellectual Property and Technology announced that Google is ranked eighth in the world among the top 100 global innovation companies.30 Google has experienced rapid growth since its creation in California Mountain View in 1998. In September 2001, Google’s web rating mechanism Page Rank was awarded a US patent and awarded to Stanford University. By 2004, Google’s development culminated in the processing of 80% of search requests on the World Wide Web. In August 2004, Google was successfully listed in NASDAQ. After refining traditional businesses such as search, Google launched an open source mobile operating system, Android, based on the Linux platform, in 2007 to begin moving into the field of mobile applications. Android has grown rapidly in the context of the popularity of smartphones and has been used on most smartphones except for Apple phones, with a market share of 79% in 2013. In September 2008, the Google Map satellite was launched, allowing Google Maps to provide a better map service. In the same year, Google and the Financial Group HSBC and International Cable Group Liberty Global formed a network plan called “O3bNetworks” to bring network services to Earth by launching 16 satellites. The area connected to the network, named O3b, means the other 3 billion people on Earth who do not have access to the network. Through this network program, it is truly built on an environment that has networking capabilities in any region of the planet. In May 29 30

Google’s introduction and development content from: Chen [10]. http://www.eefocus.com/component/375854.

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2012, Google acquired Motorola Mobile. In June of the same year, at the opening of the Google I/O Developer Conference in San Francisco, USA, Google, as a mobile smart operating system industry giant, launched a set of “soft and hard” combinations of boxing, released the latest operating system Android 4.1, selling price 19$9 Google’s first self-branded tablet Nexus7, avant-garde social communication media player NexusQ, and cool concept smart glance “Google Glens”. By October 2, 2012, Google had surpassed Microsoft and became the second largest technology company in the world in terms of market value. In 2013, the Global Brand Consulting Company Interbrand published its 2013 Global 100 Brand Report, which showed that Apple and Google ranked among the world’s most valuable brands, with Google’s market value leaping second to $394 billion.

5.4.2 The Core Competency Base of Google’s Innovative Ecosystem 1. Core competency building based on patent strategy As one of the world’s most innovative high-tech companies, Google has for many years focused on the rapid accumulation and development of its patent capabilities and building its core capabilities through the rapidly expanding Google Patent Gallery. By the end of 2013, global company patent ownership statistics showed Google’s total patent rankings fourth in the world, falling behind IBM, Microsoft and Apple, as shown in Fig. 5.28. Google’s patent strategy was initially inspired by the failures of international technology giants such as Apple in patent warfare. In 2006, Apple suffered a $100 million loss in an iPod patent dispute; at the same time, the US company represented by Gao Tong has been continuously competitive because of the importance attached to patent capacity. In 2006, Google launched and vigorously developed a patent strategy based on an analysis of US high-tech patent strategy and practical experience, as well as the protection and promotion of listed resources by the company’s patent pool, emphasizing patent applications for every innovation and product, guiding Google’s fast growth in patent numbers and the rapid expansion of the patent pool, and ultimately leading Google in the global patent competitors rankings. Based on the growth of patent capacity and the rapid growth of patent numbers, Google is not unfocused, but rather tightly tied to the core business of the company. From its inception, Google’s core business focused primarily on website and information search and built itself into the world’s best search engine. However, due to the low price return of the business, Google has transformed itself into an online community, starting to try the strategy of free search and soliciting ads through a rankings sales mechanism. After entering the twenty-first century, Google continues to extend its search business to upstream content searches, as well as downstream end device searches (such as mobile phones, TVs, mobile devices) and join the smart

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7000

Number of patents / items

6000 5000 4000 3000 2000 1000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Years IBM

Microsoft

Apple

Google

General Electric

Intel

Yahoo

Fig. 5.28 Comparison of the number of patents of global companies. Source Hou [11]

end service industry in the Android open source community. However, the extension of the industrial chain and the embedding of open source models have led to a development crisis caused by Google’s lack of patent protection and patent capacity. To compensate for this bottleneck in company development, Google first enhances patent capacity through mergers and acquisitions. Google tried to buy North Power Networks and more than 6,000 patented technologies with US $900 million, but eventually lost in a bid with competitors. At the same time, in 2011 Google focused on the core business of Motorola and its over 24,000 patents, developed around the mobile phone market and acquired Motorola’s cell phone sector for $1.23 billion, thereby merging Motorola with more than 24,000 patents granted on the basis of a large Android system user base, the company’s patent capacity has increased rapidly and the number of patents has increased. In 2014, on the basis of more than a decade of fast-growing patent capacity and patent volume, Google acquired the smart thermostat NEST31 at a further $3.2 billion to provide better and more specific services to Google users. These technologies and services are based on Google’s long-standing patent technology accumulation, patent capacity development and upgrading, which provides the foundation for Google’s core competencies in the search business area, smartphones and mobile networks. 2. Build on innovative products and their systematic core competencies From its inception, Google sees STI as the key to the company’s core competencies, attaches great importance to product and service innovation, and continuously invests in innovation. According to statistics, Google’s investment in product and service 31

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R&D over the years accounted for more than 13% of the revenue, and the proportion of people dedicated to product and service R&D exceeded 50%. Through years of core capacity building based on innovative inputs into products and services, Google has continued to innovate in products and services for search, application services, advertising, mobile and corporate services, and quickly market for high quality. This is systematically categorized and summarized in Table 5.12. Among them, the advertising business is the core business for Google’s profits and Google’s search platform-based support for growing and innovative business. Google has designed dedicated account management, extended and linked account management, business intelligence, automation and anti-automation based on the North American market, European market, Middle East market, African market, Asian market, Latin American market, etc. Business modules, such as Feed Support, extend the service to traditional search and mobile connections through professional team support, and integrate on the Internet platform to achieve platform-backed advertising service core competencies, as shown in Fig. 5.29. 3. Core competence building based on non-technical elements such as culture and organization Beyond proprietary capabilities and innovation-led products and services, Google further refines its core competencies at the level of non-technical elements such as culture and organization. First, Google developed the company’s “Google Ten” in the development process and implemented as a corporate belief of all employees and managers, as shown in Table 5.13. Second, within Google, the well-known “20% rule” organization system has been developed, which allows employees to extract 20% of their working hours to explore corporate activities outside their own jobs. Google’s series of important products, such as free mailbox Gmail, Google Map, Table 5.12 Classification and summary of google innovation product systems Subcategory of the product system

Typical products

Search class

Alens; Blog Search; Book Search; Catalogs; Custom Search Engine; Desktop; Directory; Earth; Finance; Gears; Images; Language Tools; Maps; Personalized Search; Product Search; Scholar; SketchUp; Toolbar; Web Accelerator; Web Search; Images; Language Tools

Applications

Apps; Blogger; Calendar; Checkout; Code; Docs and Spreadsheets; Gmail; Groups; Labs; News; Notebook; orkut; Pack; Picasa; Picasa Web Albums; Reader; Talk; Translate; Video; Webmaster Tools; YouTube

Advertising

AdSense; AsWords; Analytics

Mobile class

Mobile; Dodgeball

Corporate services

Earth for Enterprise/Google Earth Pro; Maps for Enterprise; Mini; Search Appliance; SketchUp Pro

Resource Groysberg, Thomas and Wagonfeld [12]

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Fig. 5.29 Core architecture of Google’s advertising services business. Resource Groysberg, Thomas and Wagonfeld [12]

Google Earth, are born 20% of the employee’s free time, making the “20% rule” a “Golden Law32 ”. This rule preserves employee creativity and promotes the creation of an innovative atmosphere within Google. Finally, focusing on the creation of a culture of organizational innovation and the stimulation of employee creativity, Google has established the re: Work website, professional focus on the sharing of experiences on best innovation practices, to enrich and optimize employee innovation capabilities, and to promote the creation of a corporate culture of innovation and innovation. Table 5.14 summarizes the main practical experiences of the re: Work website.

32

Chen and Zheng [13].

256 Table 5.13 Google ten content description

5 Corporate Innovation Ecosystem Based on Core Competence Case …

Google’s ten English descriptions 1. Focus on user and all else will follow 2. t’s best to do one thing really, really well 3. Fast is better than slow 4. Democracy on the web works 5. You don’t need to be at your desk to need an answer 6. You can make money without doing evil 7. There’s always more information out there 8. The need for information crosses all borders 9. You can be serious without a suit 10. Great just isn’t good enough Source Groysberg, Thomas and Wagonfeld [12]

5.4.3 The Construction and Development of Google’s Innovative Ecosystem 1. Innovative Ecosystem Based on Internet Platform33 At present, Google’s products, including software, operating systems and hardware, are or are about to become the industry leader in the Internet, software, and operating systems sectors. In the field of hardware, a range of products, such as Google Smart Eyewear, were also introduced and Motorola was acquired. Google’s development and innovation today is largely due to its innovative ecosystem, which combines software and hardware to attract system supporters and users by continually improving ecosystem experiences. Google spent billions of dollars creating a web platform to develop unique technologies, create unique innovation foundations and ecosystems. It enables companies to quickly develop and promote new services designed by themselves or their partners, as shown in Fig. 5.30, by building innovative platforms and gaining control. In this innovative ecosystem, different third parties can visit here to develop new applications that incorporate Google’s functional elements while testing and marketing their products to users. Google, third-party innovators, users and advertisers constitute an innovative “ecosystem”, and the positive interaction between them forms a virtuous circle that benefits all parties: users can get richer and more innovative products faster; advertising The business has a larger advertising platform; once the third-party innovator’s product has created enough value, it will be able to obtain bargaining power and negotiate a revenue distribution agreement with Google; Google will increase website traffic by providing more additional products. And as the owner and operator of this ecosystem, it is able to control the development of its ecosystem and earn a very high percentage of its benefits. In the specific 33

The contents of this section are mainly from: Chen [9], and some content has been modified and supplemented.

5.4 Google Case

257

Table 5.14 Google re: a summary of the practical experience of the Worksite Key practice initiatives

Detailed description

Predict innovation performance

From the start of recruitment, Google assesses the creativity of employees and brings together their personal information and creativity assessments to form individual innovation performance forecasts. Google believes that we cannot only judge the creativity of individuals at work, but also develop their ability to be more innovative. At the time of recruitment, there should be clear diagnostic indicators, including knowledge, skills, competencies and other characteristics, such as personality

Selection and development of managers

Google re: Work Research Proves: Managers are very important to building creativity for their employees. Using its manpower analytics tools, Google has identified a variety of ways to make managers work more efficiently and innovate, and has stimulated and nurtured employee creativity through the role of managers. These methods include: letting the team go, rather than being meticulous; listening to employee outcomes and personal well-being; building a strategic plan and a shared vision for the team; and acquiring technical expertise to enable them to fully understand and evaluate team creative ideas

Managing diversity

To help employees understand and manage the unconscious bias they may have between them in teamwork and teamwork, Google has developed a “no bias” program and even provided tools for employees to organize their own “no bias” workshops. Studies have shown that “technology”—shift thinking, often used in “unbiased” workshops, can be used to leverage the benefits of different perspectives and promote team creativity

Dynamic team

Research on the Google re: Work website shows that a team is not essential and how to interact with the team is critical. As a result, Google identified five major predictions for successful teams, namely, psychological safety, reliability, clarity of structure, relevance to work, and impact on work. Google notes that team psychosocial security has a significant impact on team success, and that psycho-comfortable team members are more willing to share their views and are more likely to accept each other

Source http://www.chinaz.com/manage/2015/1125/475098.shtml; Chen and Zheng [13]

business, Google’s innovation ecosystem has its own form of embodiment, and its main business related summary is shown in Table 5.15. 2. Innovative ecosystem based on Android platform Android is an operating system based on Linux’s open kernel, a mobile operating system announced by Google on November 5, 2007, and is considered the first truly open and complete mobile software platform for mobile terminals. The Android platform consists of a Linux kernel layer, an Android runtime library and other layers, application framework layers, and application layers, whose basic structure and primary role are shown in Table 5.16.

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5 Corporate Innovation Ecosystem Based on Core Competence Case …

Media company, individual ● Production information ● Stimulating consumer interest; fostering community

Content supplier

Users

Consumer ● Search information ● Browse ads for specific goals ● Become a commercial user of new products

Google platform Company and individua ● Deliver relevant advertising content to users identified via search ● Create huge revenue streams for Google

Advertisers

Third party innovator

Mixed program creator, open source community ● Develop new products and sustain consumer engagement ● Expand the value of Google tools and technologies

Fig. 5.30 Google’s innovation ecosystem based on the Internet platform

Table 5.15 Specific business performance of Google’s innovative ecosystem Main business

Specific performance

Google API

The operating system leaves the application with a call interface and any person or business can redevelop and integrate Google’s products according to their needs as long as they are certified or licensed through Google

Google map

If a user recommends local business information to Google Map with the relevant information, each referral will result in a return of $10. For example, when a user searches for Philadelphia Dentist on Google Map, Google Map not only lists the corresponding entries, but also gives a coupon link

Google advertising

Google strives to create an advertising business ecosystem. Google ears 99% of the world’s revenue from web advertising products. Because the Sponsored Ads platform in the right-hand section of the website is small and does not fully meet the needs of advertisers, Google has developed AdSense, through which Google can distribute advertisers to other small and medium-sized sites, and sites that are assigned to these advertisements receive advertisements as a result of showing or attracting customer downloads and registrations. In this advertising ecosystem, Google is more like an advertising agent, one hand representing small and medium-sized businesses that cannot advertise TV media, print media, news portals, and the other hand distributing these ads to other small and medium-sized sites

In 2008, Google, HTC and Gaosong collaborated in the development of the world’s first Android mobile phone G1, and Android systems became the only mobile ecosystem in the world that is in contrast to Apple’s iOS system, which is inseparable from the creation of its open source innovative ecosystem. At the heart of Android’s innovative ecosystem is ecology and win–win thinking, its development begins with a good interaction with APP (Application, Applications) developers and working

5.4 Google Case

259

Table 5.16 Hierarchical properties for android platforms Android platform level (low to high)

Specific description

Linux kernel layer

The core system services of Android depend on Linux 2.6 kernel, such as security, memory management, process management, network protocol stack and driver model. The Linux kernel also serves as an abstraction layer between the hardware and software stacks

Android runtime library and It mainly includes program library (including system C library, media library, Surface Manager, LibWebCore, SGL, 3D libraries, other library layers FreeType, SQLite) and Android runtime library (responsible for providing most functions of Java programming language core library) Application frame layer

Full access to the API (application program interface, application interface) framework used by the core application. Any application can publish its functional blocks and any other application can use the functional blocks it publishes (subject to the framework’s security restrictions). Similarly, the application reuse mechanism allows users to easily replace program components. Behind each app is a range of services and systems, including rich and scalable views, content providers, resource managers, notification managers, activity managers

Apps

All applications are written via JAVA, and Android will be published with a series of core application packages including E-mail clients, SMS programs, calendars, maps, browsers, contact managers, etc.

Resource http://blog.chinaunix.net/uid-25838286-id-3011173.html

with chip manufacturers, mobile phone manufacturers, and suppliers to create an open and innovative ecosystem platform for Android. As Android’s open platform grows, more and more mobile devices are embedded in Android’s open and innovative ecosystem platform, and the leading edge of Android’s system in the smartphone market is emerging, as shown in Fig. 5.31. In the evolution, Android’s ecological strategy has been transformed. Android was the first to implement a fully open and innovative ecosystem strategy, and has brought together many mobile manufacturers to innovate collaboratively, such as HTC and Samsung. Collaboration means that eco-members can share Android software code to gain innovative technical support and market-leading advantage. After that, on the basis of the accumulation of a large number of eco-partners, Android began to move to a higher level of profitability, advancing the implementation of binding agreements among eco-members (mainly for mobile phone manufacturers), and developing configuration, research and development, market experience, operator functions, etc., seek standardization and uniformity of the Android ecosystem to capture value spillover benefits at the ecosystem level. With the implementation of the Ecosystem Strategy, Android has made Google a standardized platform, not just a device manufacturer or operator. Google has also been successful in eco-strategy

260

5 Corporate Innovation Ecosystem Based on Core Competence Case … 2012 90

2014

78.9 %

80 Market share%

2013

70 60 50 40 30 20

14.9 %

10 0 Android

iOS

3.9 % Windows Phone

1.0 % BlackBerry

Other

1.3 %

Fig. 5.31 Global smartphone market system share. Resource http://www.csdn.net/article/2014-1022/2822247

through the innovative ecosystem platform value return of Android system itself and the interaction of Android systems with Chrome and other businesses, winning a sustained global market competitive advantage.

5.4.4 Case Summary As the world’s most innovative, high-tech enterprise giant, Google builds its core capabilities based on patent strategies, innovative products and their institutionalization, innovation culture and organization building, and builds an innovative ecosystem based on the Internet platform, as well as an innovative ecosystem based on the Android system platform. The former is oriented towards Google Internet business, while the latter is more focused on mobile terminal business, thus realizing the positive contribution of Google’s core-based innovative ecosystem strategy to the two business directions of the Internet and mobile terminals, resulting in continued competitive advantage and good performance returns for Google.

References 1. Chen J (2015) Smart convergence—strategy of enterprise based on business and innovation ecosystem. Zhejiang University Press, Hangzhou 2. Chen J (2015) Intelligence convergence—strategy of enterprise based on business and innovation ecosystem. Zhejiang University Press, Hangzhou 3. Chen J, Jin W (2008) Interaction between knowledge and capital: a new model of international industry-university-research strategic alliance. High Eng Educ Res 1:29–33 4. von Hippel E (2005) Democratizing innovation. MIT Press, Cambridge

References

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5. Lafley AG, Charan R (2008) The Game-Changer: how you can drive revenue and profit growth with innovation. Danvers: Crown Business 6. Kaplinsky R, Posthuma A (1994) Easternisation: the spread of Japanese management techniques to developing countries. Psychology Press, London 7. Zhen WL (2007) Procter and gamble’s product innovation model study. Master’s Degree Thesis, Sichuan University 8. Manceau D, Moatti V, Fabbri J et al (2011) Open innovation, whats behind the buzzword. Europe: I7 Institute for innovation and competitiveness, ESCP 9. Chen J (2015) Wisdom gathering-the strategy of enterprises based on business and innovation ecosystem. Zhejiang University Press, Hangzhou 10. Chen J (2015) Smart exhibition-the strategy of enterprises based on business and innovation ecosystem. Zhejiang University Press, Hangzhou 11. Hou YL (2014) Analysis of the construction of Internet enterprises from Google’s patent empire. In: 2014 Proceedings of the 5th intellectual property forum of the annual meeting of the all-China Patent Agents Association (Part 1) 12. Groysberg B, Thomas DA, Wagonfeld AB (2011) Keeping Google “Googley”. Harvard Business School Press, Boston 13. Chen J, Zheng G (2016) Innovation management: winning sustainable competitive advantage, 3rd edn. Peking University Press, Beijing

Chapter 6

Case Study on Enterprise Innovation Ecosystem Based on Core Competence—Domestic Part

Enterprise should be borderless. We want to build an ecosystem that every employee within is starting a business, they are like trees, and many trees grow into a forest. In this forest, there may be birth today, and may be death tomorrow, but on the whole, this forest is vibrant. We hope that our company can achieve something like this and finally shape an ecosystem. ——Zhang Ruimin, Chairman of Board of Directors and CEO of Haier Group

6.1 The Case of Founder1 6.1.1 Introduction and Development of Founder Group Founder Group, a Beijing University-based enterprise, was established in 1986. Peking University holds 70% of the shares, and the company’s management holds 30%. Academician Wang Xuan, academician of the three academies and the National Science and Technology Award-winner, is the technical decision-maker of Founder and the founder of the company. The Chinese character laser phototypesetting technology which he invented has established the founding business of Founder Group. After more than 30 years of development, Founder currently owns 5 major industrial groups, 6 listed companies at home and abroad, and more than 35,000 employees. Founder has become a diversified investment holding group which covers IT, medical and pharmaceutical, real estate, finance, commodity trading and other industries, and its business covers major cities in China. At the same time, Founder is also actively exploring overseas markets and has achieved remarkable results. In 2012, Founder’s total revenue was RMB 61.8 billion, total assets reached RMB 78.2 billion, and net assets were RMB 32.4 billion. Founder’s annual output value accounts for half of China’s school-run industry. It has grown into a large-scale holding group company 1

Founder’s case content mainly comes from: Yan and Chen [1]. Associated with the two authors, Peking Founder is based on a research report on the technology innovation system of diversified strategic enterprises. © Science Press 2023 263 J. Chen, Enterprise Innovation Ecosystem, https://doi.org/10.1007/978-981-99-3374-7_6

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with comprehensive strength among the top three in China’s information industry, and has become a typical representative of successful diversification strategies for Chinese companies. The total income of Founder Group from 2000 to 2012 is shown in Fig. 6.1. For a long time, Founder has focused on scientific and technological innovation in the four fields of culture, health, education and science and technology, and actively interprets and practices the independent innovation model of production, study and research. Relying on the support of Peking University, Founder is committed to continuously creating core technologies that are critical to the development of the industry in the information industry and medical and pharmaceutical industries. Founder is one of the first batch of six technology innovation pilot enterprises in China, and has won times of titles such as “National Technology Innovation Model Enterprise”. Founder has been developing for more than 30 years since its establishment in 1986, and has become one of the leading innovative companies in China. Table 6.1 details the development of the Founder Group.

Total Revenue / RMB 100 Million

700 600 500 400 300 200 100

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

0

Year Fig. 6.1 Total revenue of Founder Group from 2000 to 2012. Source According to the internal data of Founder Group. Limited by the availability of data, only data as of 2012

6.1 The Case of Founder

265

Table 6.1 Details of the development of founder group Year

Description on main development history

1986

The establishment of Beijing Science and Technology New Technology Co., Ltd., the predecessor of Founder, marks the birth of Founder Group, which started with the Chinese character laser phototypesetting system invented by Professor Wang Xuan

1989

The order quantity of the Chinese character laser phototypesetting system exceeded 100 million yuan, which laid a good foundation for the follow-up development of Founder Group

1990–1994

Under the efforts of Professor Wang Xuan and a group of young technical backbones, the newspaper remote publishing technology, color desktop publishing system, news editing system and a new generation of software and hardware systems in line with the international open trend have been published. With its remarkable technological leadership, Founder Publishing finally won 80% of the Chinese newspaper market in Hong Kong, Macao, Southeast Asia and North America

1992

Founded by Beijing Peking University Founder Group Co., Ltd., it has become the fastest-growing, strongest, most influential and most well-known high-tech enterprise in China

20th Century Late 90s

The seventh and eighth generation publishing systems have successfully entered the international market while maintaining their leading position in the country, marking the younger generation to become the backbone of Founder’s technological innovation. At the same time, Founder has the core technology of independent intellectual property rights to successfully OEM (original equipment manufacturing, or “OEM”) to internationally renowned manufacturers. Professor Wang Xuan’s “Worldwide” dream becomes reality

2001

Wei Xin was appointed as the chairman of Founder Group. Founder Group began to implement the development strategy of “limited diversification on the basis of specialization” and began to develop from a single high-tech enterprise to a diversified enterprise

2003

Founder Group completed the restructuring–the introduction of strategic investors, the introduction of professional managers team, Li You as CEO, improved the group’s management system and management and control mode, adding new vitality to the company’s leap-forward development. At the same time, Founder Group put forward the governance concept of “one principle, five unifications”, that is, under the principle of “upgrading control rights and shifting management rights”, realize the five unifications of the group platform management and control, which means the unified finance, Investment, personnel, brand and internal control management

2004

Beijing Peking University Founder Group Co., Ltd. changed its name to Peking University Founder Group Co., Ltd., and the name has been used until now

End of 2005

The Founder Group Three-Year Strategic Plan was completed and implemented. The goal of the three-year plan is to initially build Founder Group into a group-based company based on the dual main businesses of the information industry and the medical and pharmaceutical industry, with good profitability, abundant cash flow and abundant talent reserves (continued)

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Table 6.1 (continued) Year

Description on main development history

February 13, 2006

Professor Wang Xuan passed away of illness, leaving Founder staffs with endless recollection and nostalgia In December, the 20th Anniversary Celebration of Founder Group was held in the Great Hall of the People, and the sales revenue of the year exceeded 30 billion yuan

Early 2009

Founder Group formulated a new three-year development strategy (2009–2012) and formally proposed the development goal of transforming to “multiple investment holding group”

Early 2012

Founder Group completed the formulation of the strategic plan and implementation plan for 2012–2016, and defined the strategic goal of the Founder Group in the next five years–“one center, two basic points”. “One center” refers to the promotion of operating profit as the center, achieving net assets and income of over 100 billion yuan and net profit of over 10 billion yuan. “Two basic points” refers to the ability and efficiency of the overall allocation of resources based on a sound and efficient investment holding group management model; Based on comprehensively promoting the strategic optimization of the team, reshaping the value realization and the positive and open corporate culture atmosphere, and creating the inheritable enterprise genes, making Founder Group a respected investment holding group

2013

With years of development in technological innovation and business model innovation, Founder was named “China’s Top 20 Software Innovation Companies” 2 and was selected into the “Most Admired Chinese Company” list by Fortune magazine

2014

Founder Group won the “Cooperative Innovation Award” from the Beijing Intellectual Property Exchange, and cooperated with Peking University and Peking University Medical Department to develop a deep industry-university research cooperation in the medical industry

2015

Projects such as Founder Medical and Rehabilitation Hospital were officially completed. Founder Electronics launched the “Internet Entrepreneurship Genuine Font Support Program” to provide free copyright licenses for domestic Internet micro-innovation companies and individual developers

2016

Founder Securities Research Institute won the second place in the “New Fortune” the fastest-growing research institution, the eighth best local research team, and the ninth best organization in the best sales service team, and it started in-depth cooperation and innovation in the fields of health care, health, intellectual property, real estate, finance, smart cities, etc.

Source http://www.founder.com/about/dev.html

2

http://www.founder.com/.

6.1 The Case of Founder

267

6.1.2 The Core Competence Foundation of Founder Group’s Innovation Ecosystem 1. Group core competence based on patent accumulation

Number of patents / items

“Continuous innovation” is the intrinsic gene that drives Founder. In the course of more than 30 years of enterprise development, Founder relies on Peking University and upholds the high-tech enterprise development concept of “Technology is the top, market is the bottom” by Professor Wang Xuan, and has always been committed to innovation and research and development of core technologies. As of the end of March 2014, Founder has applied for more than 2,200 invention patents, and has national post-doctoral research stations in the fields of IT, medical medicine, and finance. Stare-level laboratories such as the National Key Laboratory of Digital Publishing Technology and the National Inkjet Digital Printing Technology Laboratory have also settled in Founder. Figure 6.2 shows the number of cumulative invention patents filed by Founder from 2003 to 2013. In the information industry, Founder is committed to software innovation and business development in software and industry solutions, it has many core technologies in the IT field such as Chinese information processing, digital right management (DRM), big data public opinion, digital publishing, and digital printing. In the field of medical and pharmaceutical, Founder adopts a model combining international cooperation and independent research and development to carry out research and development of innovative drugs in the fields of cancer, psychology and metabolic diseases, aiming to establish a globally competitive pharmaceutical product line. Among them, lovastatin is the world’s first listed statin hypolipidemic drug. After nearly 20 years of research and development, Founder has become the world’s largest supplier of lovastatin production; sulfonamide is the world’s most classic animal drug for the treatment of a variety of bacterial infections, and Founder’s Southwest Synthetic is the world’s largest manufacturer of the drug. Professor Wang Xuan presided over the invention of Chinese character laser phototypesetting technology to promote the 2000 1800 1600 1400 1200 1000 800 600 400 200 37 0 2003

1298

1709

1861

1874

912 642 61

122

247

2004

2005

2006

390

2007

2008 Year

2009

2010

2011

2012

2013

Fig. 6.2 Number of patent applications filed by Founder in 2003–2013. Source According to the data of the National Patent Office website

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epoch-making technological change of China’s printing industry. Professor Wang Xuan was also hailed as contemporary Bi Sheng. In 2002, Professor Wang Xuan won the National Science and Technology Award. In 1998, Founder Electronic Publishing System was awarded the first prize of the Torch Excellent Project of the Ministry of Science and Technology; in 2005, Founder Digital Copyright Protection System was awarded the National Torch Program Key Project, and three technological innovations including Founder Digital Newspaper Asset Management System won the second prize of National Science and Technology Progress Award. In 2004, Founder won the title of “2003 The Most Competitive Enterprise in Information Technology Innovation of China”. In 2008, Founder was awarded “Top 10 Enterprises in China’s Software R&D Competitiveness”. In 2013, Founder was selected as one of the “Top 20 Chinese Software Innovation Force”. 2. Group core competence based on core technology and technological innovation evolution The electronic publishing system based on Chinese character laser phototypesetting technology promoted the technological revolution of Chinese newspaper publishing and printing, and laid the foundation for Founder’s start and growth. The key project of this technology is one of the three topics of the “Chinese Character Information Processing System Project” (referred to as “748 Project”), a key scientific and technological research project established by the state in August 1974. In 2000, the General Office of the State Council issued the “Guiding Opinions on the Reform of Urban Medicine and Health System” and proposed three reforms of “medical, medical insurance, and medicine.“ In 2003, the pilot project of new rural cooperative medical care was launched nationwide. In the same year, the SARS epidemic further promoted the reform process of the public health system. Based on the judgment of the market-oriented policy orientation of the medical and pharmaceutical industry, Founder decided to enter the medical and pharmaceutical industry. The “Outline of the National Development Plan for the 11th Five-Year Plan” promulgated in 2006 clearly pointed out that the digital publishing industry should be developed. In 2007, the former State Press and Publication Administration launched the feasibility study of the “National Digital Composite Publishing Project”. Founder of Digital Publishing has established Beijing Founder Apabi Technology Co., Ltd. (abbreviated as Apabi) to focus on the innovation and development of digital publishing document formats and digital copyright protection technologies. The “12th Five-Year Plan for Development of the Press and Publication Industry” released in April 2011 proposed to vigorously develop e-books projects, and the state and local governments have gradually increased their support for the digital education industry. Founder officially entered the digital education field in 2012, focusing on digital technology production tools and digital education service platform technology innovation. Founder’s continuous growth is due to the technological innovation. In the choice of technological innovation direction, Founder always follows the principle of

6.1 The Case of Founder

National policy

Founder's innovation field

The state established the "748 Project“ 1974 Chinese character laser phototypesetting technology

269 “The National Outline of Cultural Development "Guiding Opinions during the Eleventh Fiveon Urban Medicine Year Plan” was Will Not Be promulgated, and the Reformed in Health National Digital Composite System" was Publishing Project was promulgated launched 2000~2003 2006~2007 Entering the medical and pharmaceutical industry

Entering the digital publishing field

"Development and Publishing Industry ‘Twelfth Five-Year Plan’ Development Plan“ 2011 Entering the digital education field

Fig. 6.3 Founder’s technical innovation timing diagram

matching with national development strategy and support policy. Figure 6.3 shows Founder’s technological innovation direction in the different stages of development. 3. Non-technical elements of the Group’s core competence: organizational guarantees for innovation and capacity building (1) Technology Innovation Organization System The effectiveness and efficiency of technological innovation is closely related to the organizational form of innovation activities. Organizations that use innovative technologies often adopt linear models, parallel crossover models, group models, and matrix models. With the adjustment of strategy and the constant changes of internal and external environments such as technology and market, the organizational structure of enterprises will be dynamically adjusted, and the technological innovation system of enterprises will change accordingly, especially the research and development system of technological innovation will change. Founder has experienced the process of organizational evolution and change, and its research and development system has also continued to develop with it. With the implementation of Founder’s “New Five-Year Strategy”, the multi-level technology innovation R&D system with the characteristics of Founder is improving day by day, as shown in Fig. 6.4. From the organizational level, Founder’s R&D system is divided into 3 levels: Group Technology Center, Second-Level Company Technology Center, and R&D Division. The Group’s technology center is based on Founder Technology Research Institute and focuses on major technical tasks that are geared towards industry innovation trends for more than three years. Founded in 1995, Founder Technology Research Institute has the qualifications of the National Enterprise Technology Center and the National Engineering Research Center for Electronic Publishing New Technology. Professor Wang Xuan is the first president of Founder Technology Research Institute. The current director of Founder Group and CTO Xiao Jianguo is the second president. Founder scientist and researcher of Peking University Computer Research Institute Tang Chi is the first dean of the Digital Publishing Branch of Founder Technology Research Institute. In the past 20 years, Founder Technology Research

270

6 Case Study on Enterprise Innovation Ecosystem Based on Core … National Key Laboratory

Group Technology Center

Secondary Company Technology Center Business Department R&D Department

National Engineering Research Center

National Enterprise Technology Center

Digital Publishing Laboratory

R&D Center

Technical Management Department Technical management

Founder Technology Research Institute

Collaboration

Innovation Center

Discover innovation Business Plan Innovation Competition Competition

Science and technology projects

Intellectual property

Standard specification

individual-oriented

Talent management

R&D Department A

R&D direction 1

R&D Department B

R&D direction 2

R&D direction 3

Postdoctoral management

Technical expert management

R&D direction 4

External innovation entity

Cooperation

Institution

R&D group

R&D group

R&D group

R&D group

R&D group

R&D group

R&D group

R&D group

Merger

Group

Individual

Fig. 6.4 Founder multi-level technical innovation R&D system architecture diagram

Institute has made significant innovations in electronic publishing technology, intelligent information retrieval technology, layout document technology, digital copyright protection technology, etc., state-level laboratories including Key Digital Publishing Laboratory have also settled in Founder. Founder’s secondary company technology center is responsible for the commercial transformation of technological innovation results, while shouldering the technical innovation work in a period of 1 to 3 years. For example, Founder Electronics has established a research and development center and an innovation center. The R&D center is responsible for the innovation of public technologies and the research and development of basic products for multiple business areas. The innovation center is positioned to foster innovative technologies for new business areas. The R&D department (or business department) of the secondary company’s division is responsible for market development and R&D results for specific industries or sectors. The R&D department established under the framework of the R&D department of the division is committed to making full use of the technological innovations of the company and the group, and developing application products with core competitive advantages based on user needs. The R&D department usually sets two R&D organization levels of the R&D direction and the R&D group. By constructing a three-level R&D system including group, company, and division, Founder has built a set of independent innovation R&D systems that fits the longterm development of the company and can be based on the current market demand. From the perspective of the innovation process, Founder is constantly adapting to adapt to changes in the innovation environment. Take Founder Electronics as an example: with the rapid development of IT technology, especially the Internet and mobile Internet technologies, Founder Electronics’ technology innovation research and development has been upgraded from a waterfall model to an agile development model that can achieve multiple iterations in an innovation activity, as shown in Fig. 6.5. Corresponding to the multi-level independent research and development system, the technical management department of Founder Group continuously provides management services for its technological innovation from the aspects of technical

6.1 The Case of Founder

Contract registration Contract review

Metrics Management

Iteration 1

···

Release n

Release1

Demand

Design implementation

Process asset library

Human resources technical Training facilities and virus prevention management Quality policy

Iteration n

Quality goal

Project completion

Release

Test

Installation After test and sales acceptance service

Configuration management

Quality assurance

Contract management Logistic management

Quality manual

Demand Design Encryption Integration Test Review

Results management

Project establishment

Project planning and tracking monitoring

Registration

271

Customer complaints and IP Management satisfaction management

Basic file

Fig. 6.5 Founder’s agile development process

achievement management, innovation discovery, and talent management. In terms of management of technical achievements, the technical management department is responsible for the participation of enterprises in the declaration and management of national science and technology projects, the unified management of intellectual property achievements, and the participation of organizations in the formulation of standards. In terms of innovation discovery, if Founder’s complete technology R&D system provides a good organizational guarantee for team innovation, then the technology management department organizes the entrepreneurship competition and technology innovation competition to discover innovative talents and encourage innovation and idea from individual employees. In terms of talent management, the technical management department is responsible for the unified management of Founder technical experts and post-doctoral. Founder’s technology innovation system and R&D system are open. While promoting independent innovation, it is committed to actively absorbing technological innovations from external innovation institutions, teams or individuals through cooperation, mergers and acquisitions, integrating external superior resources and accelerating technology, thereby promoting the process of innovation. (B) Talent and financial support system for innovation and capacity building In early 2012, Founder completed the formulation of the strategic plan for 2012–2016. The “New Five-Year Strategy” clearly put forward the following: comprehensively promote the strategic optimization of the team, focus on value realization and active openness, reshape the corporate culture atmosphere, create the inheritable enterprise genes, and build the Founder Group into a respected diversified holding group. Founder’s development strategy is to always adhere to the principle of technology as the main line, innovation-driven, and diversified development. Technological innovation is a process of continuous investment, it requires a stable and sufficient talent

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team and strong and timely financial support. Talent is a key factor in technological innovation and the core competitiveness of an enterprise. As the country’s first batch of scientific and technological innovation pilot enterprises, Founder continues to improve the technology innovation system. In terms of career planning and longterm incentives for technicians, Founder has established a “dual-channel” mechanism for technology and management, as shown in Fig. 6.6. It encourages technicians to choose technology development channels and management development channels according to their personal characteristics to achieve self-worth, enrich and complete their careers. Founder’s professional technical position system is an important carrier for technical personnel to achieve “dual-channel” development. The implementation of the job evaluation and evaluation work not only helps the accurate positioning and improvement of the technical ability of the employees, but also creates a platform for promoting the exchange and learning of talents in different technical fields. The “dual-channel” measures for career development are conducive to the long-term peace of mind of the Founder’s technical team to do science and technology innovation, and provide talent protection for the Group to maintain its leading position in related technological innovation. In addition to salary and benefits, Founder Group also gave special incentives to the technical experts reviewed. For example, the other party is practicing a lifelong employment system. Experts have the right to participate in the formulation of the Group’s technology development plan; in the direction of innovation and R&D projects, experts enjoy priority support policies; experts enjoy annual special training fund; experts enjoy special allowances, etc. In Founder, the personnel in the technical research and development position are particularly respected, and the academic atmosphere is strong. Many college graduates can feel the rich campus atmosphere after they come to Founder. This inheritance of campus culture is conducive to the stimulation of innovation. From the very beginning of the new employee’s entry, the Management channel 1

Professional channel

President and CEO of the group company

2 Senior Vice President of the group

Founder scientist

3 Vice President of the group President of larger company Founder Senior 4 Group Assistant President Technical Expert President of a larger company 5 President of medium-sized company Founder Technical Team member of medium-sized company 6 General manager of smaller company Expert 7 Department, project manager, senior technical staff 8 9 10

Senior technician Intermediate technician Junior technician

Fig. 6.6 The dual-channel career development of the technicians in Founder Group

6.1 The Case of Founder Professional technical training Applicable personnel: 8 categories of post employees (technical, sales, production, finance, etc.) basic requirements: 1. Employees are certified to work 2. 8 categories of posts / Hierarchical and classified training system

273 • . . .

New employees must be trained New managers must be trained Cadres and employees with a promising future must be trained emphatically each year Executives must actively learn and receive training

New employee orientation Applicable personnel: all new employees Basic requirements: Minimum 20 hours of training must be attended within 3 months of entry

internal lecturers training Some courses are mainly focused on training internal lecturers, cultivated and certified by the group

Management training Applicable personnel: cadres who higher than supervisor basic requirements 1. The new supervisor must attend the training 2. Continuous learning and training of cadres at all levels

General skills training Applicable personnel: all functional office staff Basic requirements: become a permanent course of business

E-learning Use standard courseware to do online learning

Fig. 6.7 Founder Group’s training system. Source According to the internal data of Founder Group

perfect training system has become a gas station for learning knowledge and skills. Figure 6.7 shows the training system of Founder. The implementation of technological innovation cannot live without the financial support and support. In September 2010, Peking University Founder Group Finance Co., Ltd. (referred to as Founder Finance Company) was established with a registered capital of 5 billion yuan. The establishment of Founder Finance Company provides a unified financial platform for promoting the integration of industrial and financial capital and centralized management of funds within the Group. The business purpose of Founder Finance Company is to integrate internal and external resources and promote the group strategy. Based on this business purpose positioning, Founder Finance Company defines the company vision as: strengthen the centralized management of the Group’s funds, actively carry out innovations in financial products, promote the expansion and extension of the Group’s related industry chains, and ultimately build itself into a leader integrated bank within the Group. Under the strategic deployment of “one positioning,3 two initiatives,4 three phases,5 and four major support”,6 Founder Finance Company is committed to giving full play to the functions of finance and financial services, improving the efficiency of the use of funds, broadening financing channels, and reducing financing costs and financial risks. It has become a multi-functional integrated service center for settlement, 3

The One Positioning is to become the leading intra-group integrated bank. The Two Initiatives are steady running and differentiated fund management. 5 The Three Phases are the fund service phase, the industry integration phase, and the financial service phase. 6 The Four Major Supports are specialized organizational systems, standardized systems, standard processes, and sustainable and improved IT platforms. 4

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financing, consulting, and fund management of the group company, contributing to the innovation and development of Founder. (C) Values and culture of innovation and capacity building Corporate culture reflects the common ideals and values of corporate employees, while core values are the essence of corporate culture. Corporate core values are often the most basic values of company founders. A common feature of successful enterprises is to abide by the core values, which always runs through the whole process of business development, and internalizes into the value perception of employees, externalization into the behavior habits of employees, and the system and mechanism of solidification into enterprises, thus forming the core competitiveness of the enterprise. Therefore, core values are the cornerstone of corporate culture and the cultural genes of successful enterprises. The scale, level, focus and innovative methods in which enterprises implement technological innovation are often determined by its value orientation. The builder and founder of Founder, Professor Wang Xuan has always advocated “continuous innovation” and “being a decent man, doing things sincerely” and set an example. He emphasized that the most important thing to do is learn to be a man and then learn to do things. The core values of Founder are “continuous innovation” and “being a decent man, doing things sincerely”. “Continuous innovation”, in other words, advocating the innovative spirit of being bold in the concept of innovation, pursuing excellence in innovation quality and innovation methods. In the practice of innovation, advocating an open and equal spirit of collaboration, respecting, encouraging and stimulating the vitality of all members’ independent innovation. In the field of innovation, encouraging all-round innovations including technology, products, services and management. “being a decent man, doing things sincerely” is the code of conduct for all members of the company, that is, being honest and loyal, doing things with due diligence; being faithful; being decent. “Being a decent man, doing things sincerely” requires the enterprise to operate in good faith according to law, pursue win–win in business philosophy, consciously assume social responsibility, and ensure that the company’s interests are consistent with social development. The reason why the Founder Group has been adhering to the development path of “independent innovation” in the development process of more than 30 years can be summarized as three elements. First, mission and belief. That is to say, the Peking University culture of “being responsible for the country” has cultivated the sense of mission of Founder people, and cultivated the firm belief of Founder people in practicing the path of independent innovation and continuous innovation. Second, adventure and value. Innovation requires courage and bravery, and innovative enterprises must be adventurous, innovative, daring to practice, and able to control risks. Only by obtaining returns and benefits from innovation can enterprises support new innovation activities and form a virtuous cycle of enterprise innovation. Third, strategy and culture. The innovation-oriented corporate strategy is the basis for ensuring the continuous advancement of innovation activities. The cultural atmosphere based on innovation helps to build a consistent and innovative will and action of corporate members.

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6.1.3 Construction and Development of Founder Group’s Innovation Ecosystem 1. The evolution of the innovation ecosystem of Founder Group based on core competence Based on the core competence of patent accumulation, core technology and innovation system, Founder relies on the high-quality resources of Peking University, and optimizes the industrial layout and adheres to independent innovation through the development model of study-research combination, and continues to develop and evolve through the Group’s innovation ecosystem. It gradually builds itself into China’s most powerful IT service provider, the leading medical and pharmaceutical industry group in China, and “resource-integrated city operators”. It continues to innovate in the fields of finance and property, and then build a collaborative innovation system that integrates across industry resources. Throughout the process, the evolution of the enterprise innovation ecosystem based on the core capabilities of Founder Group can be divided into the following three stages. (1) The first phase: the core innovation-driven enterprise innovation ecosystem (1986–2002) The Chinese character laser phototypesetting system developed by the founder of Founder Group, Professor Wang Xuan, has promoted the revolution in China’s printing industry, and has made China’s printing industry “say goodbye to lead and fire, usher light and electricity in.“ In 1986, Beijing Science and Technology New Technology Co., Ltd., the predecessor of Founder Group, was born next to Weiming Lake. It was mainly engaged in the R&D, production and sales of Chinese character laser phototypesetting systems. In December 1992, Beijing Peking University Founder Group Co., Ltd. was formally established. In the mid-1990s, Founder’s electronic publishing system has occupied nearly 90% of the global Chinese newspapers and black and white books. The Chinese character laser photo-distribution technology laid the foundation for Founder’s development. With the success of the laser phototypesetting business, the company was expanding its IT-related software and hardware fields, including PC manufacturing, and gradually established the leading position in the IT industry in China. In the view of Professor Wang Xuan, there are five conditions for successful product development: adopting world-class equipment and technology, innovative and demanding, unique selling point, close to users, stable and reliable. R&D progress is controllable, and products are launched timely. During this period, Founder’s business positioning was to orient to the press and publication printing field, providing a publishing and printing system with core technology advantages and independent intellectual property rights. The innovation ecosystem of Founder is based on Peking University Computer Research Institute and using Founder Electronics as a research and development platform. Based on laser phototypesetting technology, it develops from back-end laser photo-distribution to front-end network publishing, from Chinese information processing to cross-language processing, and expands

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from the domestic market to the international market. Figures 6.8 and 6.9 show the technological innovation stakeholders and innovation ecosystem of Founder at this phase of development.

Publishing house R&D

Newspaper office

Printing center

Manufacture

Publishing institution user

All internal staffs

Journal agency

Sales Founder group

Computer

Beijing University

Partner

Fig. 6.8 The technological innovation stakeholders of Founder at the first phase of development

Foreign market External

Domestic market

Spirit of Wang Xuan

Founder group Founder Electronics Internal Technology R&D

Manufacture

Sales

Beijing University Fig. 6.9 The innovation ecosystem of Founder at the first phase of development

External

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(2) The second phase: the enterprise innovation ecosystem driven by the dual main business of IT and medical medicine (2003–2008) In the 1990s, on the one hand, Founder was making great success in the laser phototypesetting business; on the other hand, the blind diversification expansion eventually led to the loss of Founder. The 3 years from 2003 to the end of 2005 were the most difficult years in the history of Founder’s development. The two major problems facing the management headed by the new president, Li You, are how to make real assets and how to solve financing problems. Since 2003, Founder has continued to diversify its development path after re-examination. This depends not only on the Founder’s thinking on its own development, but also on the development opportunities brought by national policies. From the perspective of its own development, high-tech industries are greatly affected by economic fluctuations, especially in the IT industry. Diversification helps to enhance Founder’s ability to resist risks. From the perspective of development opportunities, the Third Plenary Session of the 16th CPC Central Committee clearly pointed out that “making the shareholding system the main form of realizing public ownership”, Founder seized the opportunity of stateowned enterprise reform and government investment, and first entered the industries like finance, pharmaceutical, steel, etc. The principle of implementing the diversified development of Founder is to diversify on the basis of specialization, that is, being professional in every industry and being overall diversified; specialization of subsidiaries and diversification of the group. Founder has established the following evaluation criteria in the industry selection: whether it can obtain technological advantages or other competitive advantages; whether the market space is large enough and whether it is in a rising period; whether it can bring profit. Founder started out with IT and has unique technological innovation advantages. IT business contributes more than half of the main business profit to the group, so that its main business status cannot be shaken. In September 2003, Founder Holdings Southwest Synthetic began to enter the pharmaceutical field, and in July 2004, Founder Holdings Daxin Pharmaceutical was established. The reasons why Founder chose to enter the medical industry and the pharmaceutical industry are as follows: first, based on the analysis of market-oriented policies in the medical and pharmaceutical industries, they were expected to bring huge development opportunities and space; second, thanks to the support of Peking University Medical Department, Founder gains significant competitive advantages in technology, talents and resources. In November 2004, Founder proposed the “2005–2007 three-year strategic plan”, clarifying the development strategy goals for the next three years: initially build the group-type company with dual-main-business-driven of IT and health, business profitability and competitiveness of entering the forefront in the domestic industry. In the field of IT, Founder adopts independent research and development, innovation, investment, mergers and acquisitions and other methods to extend the scope of obligations. In the hardware field, Founder extends from the PC and server business to the high end, and shifts to the innovation and manufacturing of PCBs and chips. In 2007, Founder was applying for more than 1,000 patents in the IT industry. In the medical and medical field, relying on the Peking University Medical Department, Founder

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and Peking University jointly established Peking University International Hospital Group, and then continued to extend the industrial chain to the upstream, and wholly acquired and controlled more than 10 pharmaceutical companies. In 2007, Founder’s total assets reached RMB 5.2 billion, sales revenue reached RMB 990 million, and profits reached RMB 71 million. While focusing on developing the dual-main-business of IT, medical and pharmaceutical, Founder has successively entered the sideline industry with strong profitability such as finance and real estate, which strongly supports the development of the main business. The reconstruction of the industrial structure during this period laid the foundation for the healthy development of Founder to embark on a path of diversification. Correspondingly, Founder’s technological innovation system presents the characteristics of parallel development of dual-main-business technological innovation. The technology innovation stakeholders and innovation ecosystem in the second phase of development are shown in Figs. 6.10 and 6.11. (3) The third phase: the enterprise innovation ecosystem based on diversified operations (2009-present) Since 2009, the new three-year strategy and the subsequent five-year plan have established a diversified business strategy, positioning Founder as an investment holding group, focusing on the management of investment portfolios, positioning the industrial group as industrial development and operating profit. Based on the strategic layout of related diversification, as an investment holding company, Founder owns five major industrial groups: Founder Information Industry Group, Peking University Medical Group, Peking University Resources Group, Founder Financial Group

Education

Medical field

Publishing Healthcare IT

Lyrical

Publishing field Software company

Chip

PCB

PC

Hardware company

Industrial customers

Railway transportation

Pharmaceutical manufacturing

End user Medicine

Internal enterprise

Hospital

End user

Education Institute

Health management

Founder healthcare

Founder IT Peking University Computer Research Institute Research Institute

International hospital

Pharmaceutical R&D

Peking University School of Medicine Founder Group

Beijing University

Partner Financial Institution

Fig. 6.10 The technology innovation stakeholders in Founders second phase of development

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279 Foreign market

external

Domestic Market

PCB/chip Spirit of Wang Xuan

News Publishing

Peking University International Hospital

PC

Daxin Pharm Software

Internal

Hardware Southwest Synthetic

Founder IT

Computer research institute

Founder Healthcare Medicine

Beijing University

Beijing University School of Medicine

External

Fig. 6.11 The innovation ecosystem in Founder’s second phase of development

and Founder Property Group. In terms of industrial layout, Founder is committed to supporting the improvement of China’s soft power, and has long focused on innovation and development in the four major areas of national culture, national health, national education and science and technology. Founder Information Industry Group holds all the IT businesses under the Founder Group. It owns more than 10 high-tech enterprises, 15,000 employees and more than 4,500 technical R&D personnel. By the end of 2011, it has applied for more than 1,700 domestic invention patents. In 2012, Founder Information Industry Group had total assets of RMB 16.3 billion, total revenue of RMB 14.7 billion and net assets of RMB 6.4 billion. Founded in 2003, Peking University Medical Group is an industrial group that integrates medicine and medical care. The business strategy of Peking University Medical Group is to build a hospital network based on the Peking University Medical Department and carry out industrial chain expansion in both horizontal and vertical directions: center on hospital, horizontally providing full-service for medical institutions. Founder Financial Group directly or indirectly holds more than 10 financial companies, and it is an industrial group that faces the financial field. Founder Financial Group has full financial qualifications, which cover a number of sub-sectors such as securities, futures, trusts, insurance, and commercial banks. Founder Financial Group is committed to integrating resources, strengthening synergy, and striving to become a leading integrated financial service provider in China. Founder Property Group is an international commodity supply chain service provider integrating investment, production, trading, logistics and information services. Its main business involves spot trading of bulk commodities, warehousing

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logistics services and investment and production. Founder Property Group adheres to the strategic development idea of “controlling resources and controlling channels”, extending to the upstream and downstream of the industrial chain, and actively expanding international operations to achieve scale expansion of enterprises. With the support of Peking University and Founder Group, Peking University Resources Group is positioned as a resource-integrated city operator to enhance the quality of community life and urban value of self-built projects by effectively configuring and integrating internal and external quality resources in education, IT, medical, and financial fields. At the same time, through strategic cooperation and serving real estate projects of external developers, it is committed to becoming a pioneer and leader in the operation mode of Chinese cities. The relationship between the technology innovation stakeholders of Founder Group is shown in Fig. 6.12, and the enterprise innovation ecosystem of the Founder Group’s diversified business strategy is shown in Fig. 6.13. It can be seen that the technological innovation of Founder Group has significant development characteristics, and at the same time, it also has the characteristics of mesh collaborative innovation. Its collaborative innovation is not only reflected in the collaboration between Founder and external innovation entities, but also in the innovation collaboration between various industries within the Group.

Institutional customer

Partner Founder IT

End user Competitor Founder Real Estate

Founder property

Founder Group

Financial Institutions

College

Research institution

Founder Healthcare and Medicine

Founder Finance

Beijing University Fig. 6.12 Stakeholders of Founder Group Technological Innovation

Non-profit organization

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External support system

Strategy

281 Diversification: Founder Group is positioned as an investment holding group, and industrial groups realize industrial development and operating profit

Corporate social responsibility

Practice Economic

Government

Research institution

Collaboration

Education

Beijing Universit y

Health

Platform

Culture

Partner Technology management

Supplier network

User network

Talent / Training

Financial Corporate Brand culture bonus management

Internal Information control platform audit

Foundation Value Be decent, be real, and continue to innovate

Corporate Governance Board of Directors / Equity Structure / Senior Management / Market Competition / Capital Structure

Environmental protection

Morality

Fig. 6.13 The innovation ecosystem in Founder’s third phase of development

2. The typical mechanism of Founder Group’s innovation ecosystem based on core competence (1) Innovation ecosystem coordination mechanism based on industry-universityresearch Founder Group started with Chinese laser phototypesetting technology, and always combines technological innovation with industry-university-research as the foundation of the enterprise and the source of development. Founder’s technical decisionmakers and founder of the company, Professor Wang Xuan, proposed the development model of high-tech enterprises with “technology is the top, market is the bottom”, and actively advocated the collaboration between industry and university in the combination of technology and market. Wang Xuan believes that if Founder wants to embark on a leap-forward development path through independent innovation in science and technology, it must build a technological innovation system that combines industry, university and research. He believes that “making effort on academic” and “occupation of the market” are not contradictory and can be mutually promoted under certain conditions. As an important force in the technological innovation system, the basic research and technological development results provided by universities and research institutes can provide important support for enterprise’s

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technological innovation. To this end, he proposed a famous model of industryuniversity-research: scientific research results must be productized, products must be industrialized, and industries must be internationalized. In the IT field, the basic model of Founder’s combination of industry-universityresearch is: relying on the scientific research capabilities of the Computer Research Institute of Peking University, develop and market the innovative technologies; in the fields of medicine and medical care, Founder and the Peking University Medical Department have taken strategic cooperation and carried out in-depth cooperation in discipline construction, talent introduction, personnel training, academic exchange, medical management, and brand integration. They cooperated with the medical research platform to jointly carry out scientific research project cooperation, support the “Peking University Medical Department—Founder Innovative Drug Research and Development Fund” project, jointly build a drug research and development platform, cooperate in cultivating technical talents, and actively promote the industrialization of research and development results. The Peking University Medicine School supports Founder in using brands such as “Northern Medicine”, “Peking Medical” and “Peking Medicine”, which have a very important role in introducing talents, mergers and acquisitions, and attracting investment. Collaborative innovation combining industry-university-research, on the one hand, transforming research results into products that meet market demand; on the other hand, investing part of the profits in scientific research to develop products with higher technology content and stronger market adaptability. That is to say, “to let production lead research, and let research and development promote production”, and finally form a pattern of benign development. While developing and growing, Founder didn’t fail Peking University. It has always practiced the concept of “steming from Peking University and giving back to Peking University”. It established Founder Scholarship, Scholarship and Peking University-Founder Education Economic Development Fund at Peking University to fully support Peking University’s education. In September 2010, with the approval of the Ministry of Human Resources and Social Security, Founder Medical Research Institute officially became the station of the national post-doctoral research station. The official unveiling of the postdoctoral workstation of Founder Medical Research Institute broke the pattern of having a post-doctoral workstation in the information industry. It is the practice of Founder people to persist in continuous innovation and explore the cooperation model of industry, university and research. In June 2011, Founder Financial Research Institute and Peking University Guanghua Management School post-doctoral joint training project was officially launched. (2) Incubator-based innovation ecosystem operation model As a service organization for technological innovation and entrepreneurship, the technology business incubator aims to support technological innovation, foster technology-based start-ups and cultivate entrepreneurs. The business incubator is a new type of social economic organization. At present, there is no unified definition of incubators at home and abroad. It is generally called an innovation center or an entrepreneurial center. In a UNDP study entitled “Preliminary Evaluation of

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Business Incubators in Developing Countries,” the incubator was interpreted as a work environment for nurturing new businesses designed to nurture new businesses. The environment strives to create conditions to support, train and develop successful small entrepreneurs and profitable companies. The incubator model of Founder’s innovative ecosystem is the transformation of scientific research achievements by enterprises. The main body of technological innovation in the model is enterprises. Looking at the development history of Founder Group, Founder Information Industry Group and Founder Electronics, it can be found that the descriptions of the history of the three companies are basically the same in the 1990s and before. In fact, Founder Electronics, the start company of Founder, has been playing the role of technology innovation incubator within Founder Group, and is known as the “Jinggangshan base” of Founder Group. Peking University Science and Technology New Technology Co., Ltd. is the predecessor of Founder Group. Since 1988, it has been engaged in the development and sales of Chinese character laser phototypesetting systems. In April 1992, Peking University Founder Group was formally established on the basis of Peking University Science and Technology New Technology Company. In December 1995, Founder Holdings Limited (Founder Holdings, HKEx: 0418) was listed in Hong Kong, and Peking Founder Electronics Co., Ltd. was established in Beijing and was whollyowned by Founder Holdings. Since then, Founder Group has injected all of its IT business into Founder Electronics, and Founder Electronics has become the main platform for Founder Group’s IT business. In May 1998, Founder Group acquired Yanzhong Industry (stock code 600,601) and divested its own brand IT hardware business from Founder Electronics and injected it into Yanzhong Industry. Since then, Yanzhong Industry has changed its name to Founder Technology and successfully achieved backdoor listing. In September 2000, Founder Holdings achieved the listing of Founder Digital in Hong Kong through acquisition and backdoor Rongwen Technology. Founder Electronics’ Internet services and part of the system integration business were stripped and injected into Founder Digital. In the same year, relying on the technical advantages of the media publishing field, Founder International and Japan Founder were established, focusing on the Japanese and Korean media publishing business. Since 2000, based on the research and development of the digital trend of publishing, Founder Electronics has launched and increased its investment in continuous research and development on Ebook (e-book) and digital copyright protection technology. In 2005, Founder Apabi Digital Copyright Protection Technology was awarded the National Torch Program Key Project. In 2006, Founder Apabi Company was established. The digital publishing business centered on e-books and digital copyright protection was stripped from Founder Electronics and injected into Founder Apabi. In 2004, Beijing Founder Yinjie Digital Technology Co., Ltd. was established. With the development of technology, the cost of personalized on-demand printing has gradually declined, but the digital printing equipment market has been monopolized by several international equipment manufacturers. Based on market analysis of digital printing growth trends and research on technology routes, Founder Electronics is determined to initiate independent research and development of digital inkjet printing equipment. Relying on the National Inkjet

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Digital Printing Technology Laboratory, under the unremitting efforts and continuous innovation of the high-end professional R&D team with the professor and researcher at Peking University as the core, Founder Electronics completed the development of prototypes, laboratory prototypes and product prototypes in 2006, 2007 and 2008, and successfully participated in the 2008 Drupa exhibition. Now Founder Electronics has applied for more than 100 domestic patents (including more than 40 patents granted) and more than 20 international patents in the field of inkjet digital printing technology, and has continuously introduced new models in line with market demand. As the products matured and brought to market, Founder Electronics injected the digital press business into Beijing Founder Easiprint Co., Ltd. Now Founder Electronics is the engine of the independent innovation of the Founder Group in the IT industry. In the fields of printing, media, publishing, lyrics, fonts, digital education, etc., it aims to provide customers with leading information processing technology, products, solutions and value-added services, and form a “3 + 3 + N” innovation and development model. The “incubator” mission of continuing to implement technology innovation and innovation is shown in Fig. 6.14. The IT innovation business incubation route based on Founder Electronics is shown in Fig. 6.15. (3) Innovation ecosystem service model based on industrial resource integration Based on the strategic perspective and interpreted in a systematic way of thinking, resource integration is achieved by optimizing the internal and external resources of the enterprise to obtain the overall optimality. Resource integration is a process of re-identifying, selecting, combining, and configuring various resources of an enterprise, aiming at realizing organic integration and value activation of resources. By integrating this dynamic process, resource reconstruction based on value creation can be realized. By integrating this dynamic process, resource reconstruction based

N

Encourage internal innovation and entrepreneurship A single spark can start a prairie fire

3

Higher growth in new business areas Digital education, font, vertical domain information service

3

Striving for progress in the traditional field Printing, publishing, newspaper industry

Fig. 6.14 Innovation and development model of Founder Electronics “3 + 3 + N”

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285 Founder Healthcare IT

Shanghai Founder

Founder Technology

Suzhou Founder

Founder Apabi

Founder International

1998

2000

2000

Founder Mobile Media

Fnashu.com

2006

2004 Founder Electronics

Founder Digital

Founder Easiprint

Fig. 6.15 IT Innovation Business Incubation Roadmap Based on Founder Electronics

on value creation can be realized. Up to the strategic adjustment, down to the daily operations are both involved the integration of enterprise resources. For Founder Group, Peking University Resources Group is more like a large platform that can be implanted into the Group’s many resources. Limited by size, government planning and policy, it is not possible to implant a large number of new cultural centers into each project. In the face of a rapidly changing market, Founder believes that competition follows two rules: service is involved in the competitions in any industry; the Internet is subverting everything. Based on the recognition of market competition rules, Founder extends the technological innovation of industrial resource integration from the entity to the Internet. The “Resources” system developed by Peking University Resources Group is based on all kinds of high-quality resources of Peking University and Founder, which integrates education, health, finance, shopping and life functions, and creates a Service Platform for the residents of the new cultural community. Based on the technological innovation of industrial resource integration, “Resources” extends the community life integrated service platform from offline to online. In addition to changing the lifestyle of thousands of Peking University resource owners, it also offers some new ideas for the diversified development of real estate enterprises. Resource integration is conducive to optimizing strategic resources within the enterprise, enabling enterprises to have cost competitiveness, it improves overall operational efficiency, and achieves synchronization of information flow, material flow and capital flow under collaborative mode. Based on the platform of Peking University Resources Group, Founder has realized the synergy of five major industrial resources, forming the irreplaceable technological innovation advantage of Founder Group, innovating the service concept, expanding the service space and extending the service value chain.

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(4) Adhere to the core product R&D innovation route of the open ecosystem The ability of independent innovation is the source of enterprises’ core competitiveness. The traditional view has it that independent innovation can only be carried out by the enterprise itself, which ensures the exclusive use of technical secrets and maintains the leading position of the enterprise in the market competition. Therefore, internal R&D has become the main form of technological innovation in enterprises, and breakthrough ideas come from researchers inside the company. The company independently completes technology research and development, design and manufacture, and pushes the market and creates profits through its own marketing channels to complete the commercialization process. With the development of information technology and the deepening of economic globalization, enterprises have become nodes in the market network, and the boundaries between enterprises have become blurred. Effective integration of internal and external resources and knowledge has become an important way to build enterprise technology innovation capabilities. The origin of innovative ideas, the advancement of innovation activities, and the transformation of innovation results are no longer limited to the inside of the enterprise, but may also come from outside the enterprise. Independent innovation has become an overall activity, and a multi-agent and open innovation model based on stakeholders has emerged. Founder Group is the earliest and largest Chinese character library technology provider in China. The font library is an important part of the electronic publishing system. Adhering to the pursuit of excellence in research and development, the Founder Library continues to innovate and improve its quality, and has won the favor of users in the field of professional publishing and printing. Founder fonts have also been widely used in emerging fields such as the Internet and mobile Internet. The font used in the second-generation resident ID card and the font of Liaoning carrier’s hull number “16” are designed by Founder. However, in the more than 10 years since the beginning of the twenty-first century, the font industry has been plagued by serious piracy, difficult profits, and lack of talent. Among the domestic font research and development institutions, the largest ones are Founder and Hanyi. In the 8 years from 2002 to 2010, Hanyi did not introduce any new fonts, which shows that the market environment was tough. The traditional innovation model of relying solely on the company’s internal resources for R&D and sales has been unable to maintain the continued development of the font business. On the issue of leveraging external resources and channels to realize the design innovation of the font products and the rapid development of the business, Founder was making substantial innovations in product development and business models. On April 27, 2007, Founder officially released the “Founder Jing Lei Simplified” tailored to the famous actor Xu Jinglei’s hard pen calligraphy. This is the first product of Founder’s personal calligraphy computer font, and it is also the first truly personalized character library product in China. If “Founder Jinglei Simplified” is a celebrity work, then Founder Xianren Simplified is the first font created by street performers in China. In 2011, Founder paid a living fee of 50,000 yuan in advance, and cooperated with Mr. Cui Xianren, a “chalk artist”, to develop a True Type font, which

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was named “Founder Xianren Simplified”. Founder promised to give Cui Xianren all the sales profits in the 50 years after the listing of “Founder Xianren Simplified”. In 2013, Founder launched the “Founder’s Handwriting”, a business that transforms personal handwritten fonts into a real personal computer font product. Its birth marks that “computer fonts” will enter a personalized era as a consumer product. The production process of the personalized font is: the author writes the font of his style on the font template provided by Founder Company (A4 paper with blank grid and small hints), and the font product is formatted by the Founder Company in the format of Windows standard TrueType. The breakthrough in software technology has greatly shortened the font production cycle, and the previously launched “Founder Jinglei Simplified” and “Founder Xianren Simplified” had experienced nearly two years from planning to final launch. “Founder’s Handwriting” uses the DIY (do it yourself) model to incorporate the individual into the font design, expands the designer’s virtual team, and opens up new models in the development of font products. Represented by the “Blizzard” and “Procter & Gamble” infringement lawsuits, Founder is always making unremitting efforts on the market purification and rights protection of font intellectual property. In the commercialization model of the font library, Founder replaced the simple sales method with the authorization model, achieving significant performance improvement. Always adhering to the R&D path of the open innovation ecosystem is the successful practice of Founder’s character library on the way of innovation.

6.1.4 Case Summary As one of the typical enterprises of independent innovation in China, Founder Group focuses on the non-technical elements such as patent accumulation, core technology research and development and innovation, and strengthens the construction and development of the core competence of the Group. On this basis, the three-phase innovation ecosystem evolution of “enterprise innovation ecosystem dominated by core technology—enterprise innovation ecosystem driven by IT and medical and pharmaceuticals—based on diversified business innovation ecosystem” was explored. It summarizes the innovation ecosystem coordination mechanism based on industryuniversity-research, the incubator-based innovation ecosystem operation model, the innovation ecosystem service model based on industrial resource integration, and the construction experience of four innovation ecosystems that adhere to the core product R&D innovation route of the open ecosystem, which have laid the foundation for the Group’s continued competitive advantage.

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6.2 The Case of Haier 6.2.1 Introduction and Development of Haier Group Haier is a comprehensive home appliance company in China. Founded in 1984, after years of development, it has developed into a global brand of white goods from a collective small factory that was insolvent and on the verge of bankruptcy. Haier was founded in Qingdao in 1984. Since its establishment, Haier has adhered to the innovation system centered on user needs to drive the sustainable and healthy development of the company, becoming one of the world’s largest manufacturers of household electrical appliances and the world’s first brand of white goods. Haier Group holds a number of brands closely related to consumer life, and has been the world’s largest selling household appliance brand for four consecutive years. Haier ranked 8th in the “2012 Top 50 Most Innovative Enterprises in the World” list published by The Boston Consulting Group. It entered the top 10 with Apple and Google, and was the only Chinese company to enter the top 10. In 2013, the global share of Haier Refrigerator brand and manufacturer retail sales was 16.8% and 19.8% respectively, the global share of Haier washing machine brand and manufacturer retail was 13.3% and 16.1% respectively, and the global share of Haier Freezer brand and manufacturer retail share was 20.5%. 19.9%. At this point, Haier has 9 awards of the world’s first brand of large household appliances, the world’s first refrigerator brand and first manufacturer, the world’s first brand of washing machine and the first manufacturer, the world’s first brand and first manufacturer of wine cabinets, the world’s first refrigerator brand, and the first manufacturer at the same time. At present, Haier Group has become the world’s leading provider of complete home appliance solutions and virtual-reality integrated distributors with a global turnover of RMB 180.3 billion. The Group takes consumer appliances as its core industry, and its business scope covers both commercial, real estate, financial, and distribution services. The group owns 2 listed companies, Qingdao Haier (stock code 600,690) and Haier Electric (stock code 01,169.HK). The Group has five R&D centers, 66 trading companies, 24 industrial parks around the world, and more than 70,000 employees in 17 countries around the world, and the users are located in more than 160 countries and regions around the world. From the beginning of the venture to becoming a world-renowned home appliance company, Haier Group has experienced five phases of evolution (Fig. 6.16), including: the brand strategy phase (1984–1990)– focusing on Haier product quality management and brand building; the diversification strategy phase (1991–1997)–focusing on the expansion of corporate diversification and the creation of OEC7 management model; the internationalization strategy phase (1998–2004)–focusing on the “brand creation” of the company’s “market chain” process reengineering and internationalization process; the global brand strategy phase (2005–2011)–focusing on the creation of the “Staff & User Connection” model of the group and the transformation and upgrading of manufacturing to service in 7

O stands for: overall; E stands for everyone, everything, every day; C stands for control, clear.

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the diversification strategy phase From 1991 to 1997 Brand strategy phase From 1984 to 1990 Focus on quality and create a brand

the internationalization strategy phase From 1998 to 2004

Export to "create a Acquire 18 enterprises in brand" rather than export mainland China by to "creat foreign means of “eating shock exchange" fish” to realize the scale of home appliances

the network strategy phase From 2012 to present

global brand strategy phase From 2005 to 2011

Provide users with a personalized experience of on-demand design, ondemand manufacturing, and on-demand delivery

Going out, going in, going up Transition from manufacturing to service industry

Innovation

Network strategy

Brand strategy What is lacking in China is not a market demand but good products. Haier only makes refrigerator and creates the famous brand with high quality

diversification strategy The degree of merger is not funds but concept. Haier transplants brandname refrigerators into related product fields

Comprehensive Quality Control

1984

internationalization strategy What is lacking in the international market is not “made in China” but Chinese Brand. Creating an international brand for Haier is difficult at first and easy afterwards

Through the noninventory to achieve nondistance from the user, promote the "Staff & User Connection, winwin mode" Staff & User Connection, winwin mode

"Market Chain" process reengineering

OEC management mode

1991

global brand strategy phase

1998

2005

Staff & User Connection, winwin mode

2012

Fig. 6.16 Haier Group’s development process and main phases. Source Haier Group’s PPT

the context of globalization; the network strategy phase (2012-present)–focusing on the network management of the company’s innovation and the operation and improvement of the “Staff & User Connection” mode.

6.2.2 The Core Competence Foundation of Haier Group’s Innovation Ecosystem 1. Internal technology innovation system based on R&D (1) Technology innovation system based on R&D system and patent protection In order to gain a global competitive advantage, multinational corporations are vying to establish new research institutes abroad, and according to their own history, realistic conditions and development strategies, they have formed unique research and development networks to obtain global innovation sources [2]. Haier has always paid attention to the investment in R&D and technical capabilities of the company group. In 1998, it invested RMB 500 million to establish Haier Central Research Institute, which is responsible for the R&D and technological innovation of the Group. It aimed to build a world-leading technology research and development system and carry out global R&D and technical resource integration. Based on Qingdao Haier Central Research Institute, Haier Group continued to invest and gradually established four R&D institutions: Munich R&D Center in Germany, Camden R&D Center in the

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Innovative technologies such as washing machines that do not use water, appliances that do not need to be delivered, and refrigerators that do not use compressors

Double-powered washing machine and three-door refrigerator won the national patent gold award

Patent protection, guarantee exclusive rights to technology

More than 100 patents in the smart home field, leading the completion of the international standard IEC62514 home gateway

140 patents for wireless power transmission, leading international high-power, joint ventures and research institutions to form patent pools

The core technology patents for anti-electric wall water heaters are fully protected, and incorporating international standards and national standards, global licensing revenue exceeds 4 million Patented asset management brand and product addedvalue

Integrate patents into standards, promote and applicate globally

Integrate legal barriers to global patents Patent pool global operation Establish a patent pool

Innovative technology leads the world Patent standardization Technological patentization Research and development of innovative technologies

Fig. 6.17 Five phases of development of Haier Group’s patent strategy. Source Haier Group PPT

United States, Kamiya R&D Center in Japan, and Auckland R&D Center in New Zealand. It has formed a technological innovation system structure that connects the global resource network with five global R&D centers as nodes. Based on the R&D center-led technological innovation system, Haier Group vigorously promotes the construction of global patent pools and interacts with the innovation system to provide patent protection for product development, process improvement, design innovation, etc., thereby realize the market competitiveness of group products and services. Specifically, Haier Group’s patent strategy is divided into five phases. The evolution process is accompanied by five phases in the continuous improvement of the Group’s technical capabilities, namely, research and development of innovative technologies, technology patents, patent standardization, formation of patent pool and its global operations. The basic process and feature description are shown in Fig. 6.17. (2) Technology Innovation Support Architecture Based on HOPE Platform In October 2013, Haier’s open partner ecosystem platform HOPE was officially launched. HOPE follows the concepts of openness, cooperation, innovation, and sharing to take promoting the technological innovation of smart homes and home appliances, enhancing the user experience, and creating a smart life that meets the needs of users as ultimate goals.8 HOPE platform collects the latest and hottest technology requirements, and gathers world-class technology solutions to achieve 8

http://hope.haier.com.

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seamless and fast connection between demand and resources, and accelerate the transformation of disruptive innovation. HOPE platform provides cutting-edge home appliance technology consulting, the latest views of industry experts, and the status quo of open innovation development, so that every registered user becomes the “innovative radar” of the home appliance industry. In particular, the HOPE platform brings together end users, geeks, designers, engineers and other stakeholders. Through relevant hot topics, it allows them to interact and communicate with each other in an unobstructed way, thus “colliding” the “sparks” of disruptive innovations to meet the increasingly diverse, complex, and personalized needs of consumers, and create more value for stakeholders [3]. HOPE is an important foundation for Haier’s internal technological innovation and core competence. Table 6.2 provides a systematic summary of the basic situations and main aspects of HOPE. Based on the HOPE innovation platform, Haier’s core competence around innovation have been significantly improved. First, HOPE platform brought Haier an open concept of innovation and guided Haier to open innovation. At present, Haier’s open innovation platform HOPE and its model are in a leading position in China and have reached the leading level in the world. Second, Haier’s product innovation based on Haier’s open innovation platform has brought Haier at least 50 billion yuan in revenue every year. Third, Haier’s open innovation HOPE has become Haier’s main creative development and external technology acquisition channel. Almost all of Haier’s new products are supported by the HOPE platform in terms of creativity or technical resources. Fourth, through open innovation and HOPE platform, Haier’s ability to acquire users and market demand and the ability to connect external highquality innovation resources have been qualitatively improved, the acquisition of external resources acquired has increased by hundreds of times, and the increase rate keeps in the range of 20–30% per year, which greatly enhances Haier’s innovation ability. Fifth, through the implementation of open innovation and the construction of the HOPE platform, Haier’s creative quantity and quality have been improved, the new product development cycle has been greatly shortened, the speed has increased by at least 50%, and Haier’s profit margin has been promoted. 2. Improvement of non-technical elements of core competence [3] (1) Synergy between strategic innovation and organizational innovation Since its establishment in 1984, Haier Group has taken 7 years as a strategic development phase: at the beginning of the business, since the “Smash Refrigerator” event, Haier entered the brand strategy of total quality management and won the first gold medal in the history of Chinese refrigerators. In the 1990s, Haier Group implemented a diversification strategy with the idea of “Haier culture activates shock fish”. In 1998, Haier responded to the call of the state and put forward the “three-step” strategy of “going out, going in, going up”, and gradually established a “three-in-one” internationalization model of design, manufacturing, and marketing overseas, and entered the stage of international development. With the advent of the Internet, people’s lifestyles have undergone tremendous changes. The zero distance, borderless, and networked Internet is both a challenge

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Table 6.2 Summary of Haier HOPE platform Main aspects of HOPE

Detailed description

The background of HOPE’s establishment

Haier has transformed from a large enterprise group into an autonomous business entity with micro units. Haier employees can choose to switch to a small micro team, or they can stay and do regular work. In the early days, Haier requires employees to include Haier’s external staff when setting up a micro-team, and then no longer asked for it. It is a difficult process for employees to turn to micro, and it is also a difficult choice for every employee

The main functions of HOPE Build a platform to facilitate direct interaction between users and suppliers, and shorten the time-to-market (at least half). Help the team to break down technical barriers, but don’t provide financial support. Provide consulting services for external open innovation mode (there are two charging modes according to the daily charging and packing charges). Charge more than general innovation services, but much cheaper than McKinsey and others The nature of HOPE

A self-financing independent accounting entity

HOPE’s position in the organizational structure

Play an important role in the R&D system and report to the R&D department manager

HOPE’s current performance Haier’s current flagship products almost all use HOPE to interface with external technical resources. In the first year of HOPE platform application, Haier’s external service revenue increased by 6 times Docked resource area of HOPE

Not limited. Now it is mainly based on home appliances, but basic parts are also difficult to divide into industries

Resource demand side on HOPE platform

Based on Haier’s internal small and micro enterprises, it is screened according to the intensity of user demand; It will also help companies that do not have direct competition to seek resources. Among them, small and micro enterprises are composed of Haier internal personnel and external personnel. There is no restriction that limits the small and micro enterprises in Haier must find HOPE’s help

Source and screening mechanism of resource providers on HOPE platform

At the beginning, it was cut into foreign resources, and it was gradually dominated by domestic resources. These suppliers have high enthusiasm to participate in product joint research and development, because Haier is their huge potential customer. Once the products are recognized by the market, the suppliers will receive huge orders HOPE platform is initially screened according to the basic conditions, and is specifically selected by small and micro enterprises that have needs

Advantages of HOPE platform

In addition to being able to gather high-quality technical resources in the industry, Haier’s HOPE platform also brings its strong e-commerce channel to help new products expand the market faster. At the same time, Haier’s corporate culture of “everyone is the CEO” is also a powerful guarantee for the Group to fully mobilize and utilize the resources of the HOPE platform

6.2 The Case of Haier

293

and an opportunity for the traditional manufacturing industry. In December 2005, Haier Group entered the phase of global brand strategy, integrated global innovation resources, and began to explore new business models for creating user value in the Internet era. In 2012, Haier further promoted the evolution to cope with the subversion of the traditional economy that brought by Internet, and entered the fifth phase of development–the network strategy, and proposed the management objectives of “enterprise without borders, management without leadership, supply chain without scale”. The corporate strategy determines the organizational structure, and the organizational structure is subordinate to the strategy. After Zhang Ruimin proposed the “Staff & User Connection” win–win model in 2005, he immediately began to explore the organizational framework of the enterprise. In 2010, he first promoted the “autonomous business” in the world. Haier turns the traditional pyramid organization into an inverted pyramid that the employees directly face the market and users at the top, and understand the users’ pains and needs; leaders are at the bottom, providing resources and platform support for employees. In order to make the inverted pyramid more stable, Haier has removed the middle layer, thereby achieving the flattening of the enterprise organization and forming a network organization. Haier provides employees with a platform for entrepreneurship, allowing each “autonomous business entity” to connect with its own customers and markets, and constantly interact and communicate to form a “community of interests”. Haier is making a “big company” into many “small companies”, allowing countless platform-based small and micro-formed closed-loop network organizations to continuously interact with users, sensitively feel the external market environment and create more disruptiveness product. Based on the synergy between the Staff & User Connection win–win model and the platform organization, Haier realized the synergy between strategic innovation and organizational innovation, as shown in Fig. 6.18.

Decision

Staff & User Connection winwin mode

Strategic exploration

Organizational exploration

The ecosystem of autonomous business parallel platform under the platform organization

Subordinate to

Fig. 6.18 Collaboration between Haier’s strategic innovation and organizational innovation

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(2) Management innovation and institutional innovation guarantee The new technology paradigm represented by big data, smart manufacturing and mobile internet, is spurring management change, which is more reflected in the transformation of internal and external relationships. The competition between enterprises in the future is platform-based competition [4]. In September 2005, Haier proposed the management model of “Staff & User Connection win–win”. “Staff & User Connection”, that is, combining the employees, the values they should create for the user, and the user resources that are faced. And the “win–win” is reflected in the employee’s value in creating value for the user. From the perspective of employees, Staff & User Connection makes the assets of the company become the liabilities of the employees, allowing the employees to directly face the users, directly responsible to the users, and directly create value for the users, that is, “ I create my own users, I share my own value-added.“ From the perspective of enterprises, enterprises change the traditional way of resource allocation, let each employee allocate resources through the “full contract” of the enterprise, find new ways to create value for users, and form the construction of “node closed loop network organization”, completely subvert the original business process of the enterprise, and finally form a platform-based enterprise with super network organization innovation. Haier first promotes users’ praise and guarantee a “user-guarantee” salary system. In the past, Haier used the broadband salary system, but after the organizational changes, Haier began to use two-dimensional lattice. In a two-dimensional lattice, there is a horizontal axis and a vertical axis. Within, the horizontal axis is the enterprise value, that is, the more traditional indicators, such as sales revenue, profit, market share, etc. The vertical axis is based on Metcalfe’s law and involves two variables: the first is the node of the network, and the second is the networked user.9 Haier turns employees as network nodes to connect the market and users and to assess employee performance. Haier Group’s internal implementation of the anti-driving mechanism, starting from the user’s needs, forms the top–bottom anti-driving resources within the enterprise, formulates a synergistic commitment from the internal process of the antidriving internal business entity to the external supplier, and develops a budget to ensure the completion of the goal. Haier completely reverses the operating mechanism of traditional enterprises: through the “small and micro system”, the front-line employees will operate according to the market and user needs, so that employees can fully grasp the rights of interest distribution, resource allocation, and business decision-making. This “anti-driving mechanism” ensures that the company conducts a series of innovation processes such as product development, manufacturing, sales

9

The data comes from the speech of Zhang Ruimin in 2014 entitled “Exploration of Business Model Innovation in the Internet Age”.

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295

and service according to the needs of users, so that all employees can face the users and seize the users while shortening the product innovation cycle. (3) The impact of cultural innovation In the Internet era, Haier takes Drucker’s “Everyone is CEO” as the motto, put forward the goal of “management without leadership”, flatten the organization, and hope to fully utilize the capability of everyone. Haier’s values are “people will always be the first”; it advocates the concept of “enterprise is people, management is leveraging”, and the purpose is to let every employee have a strong sense of “I am the CEO”, so that everyone in the enterprise can become a “maker” and review their own work from the perspective of entrepreneurship. Enterprises provide a platform for employees to change their traditional constraints between enterprise and employees and compulsory relationships. Haier’s iconic language such as “there is no small and micro one who doesn’t start a business” and “there is no pay without users” has made the concept of “everyone participates in innovation” become the “gene” of employees, guiding employees’ personal development views and daily behaviors. Haier’s internal concept of “always taking customer as the right, and taking oneself as the wrong” and “there is no user’s purchase without user’s participation” requires employees to have “the two spirits”, namely “innovative spirit” and “entrepreneurial spirit”. “Innovative spirit” refers to a new way for employees to achieve differentiated value for their users. “Entrepreneurial spirit” refers to entrepreneurship, encouraging employees to realize their own entrepreneurial dreams, and the relationship with the company from passive to active, turning the impossible possible, and creating greater value for users, themselves and the enterprise. The innovation culture and maker culture have formed Haier’s core culture. They supported Haier’s new paradigm of “management without leadership” in the Internet era, and finally achieved the management goal of “the platformization of enterprise, the makerization of employee, and the personalization of user”.

6.2.3 Construction and Development of Haier Group’s Innovation Ecosystem 1. Overview of innovation ecosystem construction based on core competence Since the 1990s, Haier Group has started an exploration of the open innovation model and established the Academia Sinica with the aim of strengthening innovation cooperation with the outside. In 2009, Haier established an open innovation center and set up an independent team to expand its offline open innovation business. Up to now, Haier has formed an innovation resource network with five R&D centers as nodes and radiating the world. In October 2013, HOPE was officially launched and was developed and operated by Haier Open Innovation Center. Haier’s open innovation system has evolved from offline to offline collaboarting with O2O (online to offline). In June 2014, the Hope platform was upgraded. The platform adheres to the concept

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of openness, cooperation, innovation and sharing. By integrating various excellent solutions, wisdom and creativity, the platform cooperates with global R&D institutions and individuals to provide cutting-edge technology information and innovative solutions for platform users. On May 7, 2015, Haier Open Innovation Platform HOPE welcomed the first cross-border third-party customer, Faurecia (one of the world’s largest automotive engineering solutions and auto parts suppliers). On the same day, the two sides signed a strategic cooperation agreement on the integration and sharing of regional innovation resources, and said that in the future, through cross-border cooperation, they would realize the sharing of advantageous resources in the automotive field and promote cross-domain technological innovation cooperation. After Faurecia joins the HOPE platform, the resources and ideas for the home appliance companies such as Haier will also be used by Faurecia to provide technical support and services for their innovation. On May 8th, 2015, the Haier Open Innovation Week, with the theme of “Mass entrepreneurship and innovation; everyone is the maker, lit and lead” was opened at Qingdao Haier University. Hundreds of technology innovation companies, technology transfer organizations, investment incubators, makers and hundreds of elites in the field of technological innovation from all over the world attended this innovation feast. Adhering to the concepts of openness, cooperation, sharing, and win–win, they shared their own ideas and explored the path of open innovation in the new era. The organizer, Haier HOPE Open Innovation Platform has carefully set up 3 core sections of “Open Innovation Summit Forum”, “Open Course of Open Innovation”, and “Subversive Project Matchmaking Meeting” to jointly discuss new ideas and new models of China’s open innovation. Through years of practice in the construction and development of open innovation and innovation ecosystem, Haier has gradually accumulated a corporate innovation ecosystem with synergy as its core purpose, and constructed the innovation ecosystem of interaction between enterprise and user based on the HOPE innovation platform. At the same time, based on the organizational management model of autonomous business and small and micro innovation, it realized the interactive mode of ecological members interaction mode with user participation and full staff innovation, which further optimized Haier’s corporate innovation ecosystem, as shown in Fig. 6.19. 2. User-oriented innovation ecosystem model As the earliest enterprise organization that develops an open innovation strategy in China, along with the technical complexity and the turbulent external environment, Haier Group gradually seeks strategic transformation and realizes the transformation from the traditional open innovation linear process model to the user-oriented the interactive parallel innovation ecosystem development model simplifies the innovative process and truly realizes the output of the innovation ecosystem to user value, as shown in Fig. 6.20. Table 6.3 further summarizes the basic characteristics of the innovation ecosystem before and after the transition. In the context of the construction of a user-oriented innovation ecosystem, Haier combines the characteristics of the rapid development of the Internet and other technologies, based on the organizational management support of the Staff & User Connection model, through the

6.2 The Case of Haier

297 The world is my R&D department

Network strategy blueprint

Internet age background

Haier

Open innovation Control development

MIT, Intel, Tsinghua, Foxconn, GE, etc Utilize and absorb

HOPE Platform Connect to the world

User driven, creating value

Enterprise R&D Center, employees

User

self-run small and microcompany system “User-guarantee” salary user forced system

Core

Technology development and product application

From competition to cooperation, interests related

innovative spirit and entrepreneurial spirit, people oriented

Fig. 6.19 Haier Enterprise Technology Innovation Ecosystem. Source Jiang, Lu and Chen [3]

creation of virtual networks, marketing networks, logistics networks, and service networks network competitiveness, establishment of innovation ecosystem of interaction, transaction, delivery platform to provide users with the best experience of the whole process, and thus cooperate with internal and external innovation resources to realize the value output of service innovation for users and further build the Group’s competitive advantage. The mechanism is shown in Fig. 6.21. 3. Haier’s innovation ecosystem protection mechanism In order to further promote the effective operation of the innovation ecosystem, Haier Group has gradually explored and established a guarantee mechanism for the operation of the enterprise ecosystem. First, the real-time linkage mechanism between enterprises and users. Based on the HOPE platform, Haier Group has achieved more than 600 network portals for innovation ecosystems, 1 million/day active user fans, and 200 projects/day of effective and innovation ecosystem performance. Specifically, the effectiveness of the external platform construction shows that Haier Group’s innovation ecosystem has integrated million of user resources, created a microblog group at a total of 58 based on “Haier Home Appliances Microblog”, “Haier Product Microblog” and “Regional Microblog”, established 3 social networking sites (SNS) based on Kaixin.com, Renren.com and Douban, and constructed a forum community e-commerce platform based on Liba, Tianya, Mop, Tmall and Jingdong. At the internal platform

298 Fig. 6.20 The transformation of Haier’s innovation ecosystem. Source Proclamation PPT data summarized by Haier Group

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299

Table 6.3 Comparison of characteristics before and after the transformation of Haier’s innovation ecosystem Main aspect

Before transformation

After transformation

Position

Ecosystem architecture based on open innovation

User-oriented innovation ecosystem architecture

Main feature

Attracting global creativity and solutions requires breakthrough innovation Attracting world-class resources to develop advanced products Due to the lack of user interaction throughout the process, there is no guarantee that the product will produce the best user experience

Innovation trading platform, gathering first-class resources such as investors and entrepreneurs Letting users voluntarily participate in interaction and achieve self-added value, forming a self-operating, self-optimizing, self-interactive Haier innovation ecosystem Interacting and carrying/out a leading solution that meets individual needs Leading the market in parallel with world-class resources

Source Proclamation PPT data summarized by Haier Group

Fig. 6.21 Haier’s user-oriented innovation ecological model. Source PPT Material Summarized by Haier Group

community level, Haier focuses on the construction of two internal online interactive platforms: “Haier/Cassati Community” and “Full/Professional Interactive Platform”. Through the collaboration of internal and external platforms, Haier has built a fullprocess user experience platform to attract user interaction innovation, tap potential customer needs, and realize the solution output of the Group’s innovation ecosystem for user innovation needs. Second, based on five R&D centers in the five regions of the United States, Europe, Japan, China, and Australia, Haier has established a global R&D system to

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guarantee the technical support of the innovation ecosystem. At present, the extended network of this global R&D system has covered more than 2,000 organizations and units in multiple channels, including research institutions, well-known universities, and top technology companies in major regions such as the United States, Europe, and Asia. It has established strategic partnerships with more than 200 top suppliers, research institutes, prestigious universities and innovative companies, and formed an innovative ecosystem of more than 2 million scientists and engineers based on virtual and real networks, thereby providing a good foundation for product development and innovation.10 Third, an open standard ecosystem. Based on the architecture and development of the innovation ecosystem, Haier Group has further established an open standard ecosystem to attract the world’s first-class standard resources to achieve the sustainable competitive advantage and market leading position of home appliance standards. Specifically, through taking the enterprise entity as the standard committee, Haier took the advantage of the enterprise’s proximity to the user market and technology, and promoted the quality of products and services and the industrial technological progress through standards. The basic structure is shown in Fig. 6.22.

6.2.4 Case Summary As a leading company in China and the global home appliance industry, Haier Group has realized the accumulation and development of Haier’s core competence through the construction of technological innovation system based on internal R&D and patent, support from HOPE innovation platform, and comprehensive synergy of nontechnical elements such as strategic innovation, organizational innovation, management innovation, institutional innovation and cultural innovation. On this basis, Haier Group focused on building and developing an enterprise innovation ecosystem, and realized the efficient operation of Haier’s innovation ecosystem through the innovation ecosystem structure of core competence elements, the exploration of user-oriented innovation ecosystem model and the establishment of the innovation ecosystem guarantee mechanism. As a result, Haier maintained and developed its leading position in the global market through its construction of enterprise innovation ecosystem that based on core competnece, and has won the competitive advantage.

10

The content is quoted from the internal data of Haier Group.

6.3 The Case of CSR Group

301

1.Become a member 2. Participate and commit activity 3. Serve as the secretariat

1.Establish a technical alliance 2.win-win and sharing

European Center

Technological innovation to meet the needs of global users

Japan Center

Resource integration platform Matching platform

Australia and New Zeland Center

European Center

American Center China Center

Contract mechanism

Fig. 6.22 Haier Group’s open standard ecosystem structure. Source Proclamation PPT data summarized by Haier Group

6.3 The Case of CSR Group11 6.3.1 Introduction and Development of CSR Group12 In 2000, China Locomotive & Rolling Stock Company was decoupled from the Ministry of Railways. The reorganization was divided into two major group companies, China South Railway and China North Railway, to enhance the development of high-speed rail locomotives in China. China South Railway Co., Ltd. (CSR) is China’s largest manufacturer of urban rail metro vehicles. It has a complete system of independent development, scale manufacturing and standardization services for 11

CSR Group and CNR Group merged and established China CRRC Group on June 1, 2015. Due to the short time since the establishment of CRRC Group, this chapter is mainly based on the case of CSR. 12 Chen J, Zhang RZ, Liu LJ. China South Railway Innovation Road, 2015.

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railway locomotives, buses, trucks, EMUs, urban rail metro vehicles and related components, and owns China’s largest R&D and manufacturing base for electric locomotives, the world’s leading high-speed EMU R&D and manufacturing base, and the industry-leading R&D and manufacturing base for high-power diesel locomotives and diesel engines. It is one of the three localized enterprises for urban rail vehicles. CSR leverages the know-how of rail transit equipment to extend its business to different product markets, including electric vehicles, wind power equipment, auto parts, marine crankshafts and diesel engines, high-power semiconductor components, and construction machinery. In August 2008, CSR realized the listing of A + H shares. It has 20 wholly-owned and holding subsidiaries, distributed in 11 provinces and cities nationwide, with more than 90,000 employees, and the headquarters is located in Beijing. The basic structure of its organization is shown in Fig. 6.23. The main business of CSR Group is mainly concentrated in the rail transit equipment industry and strategic emerging industries; in the field of rail transit equipment industry, CSR’s main business covers R&D, manufacturing, sales, repair, and leasing of railway locomotives, buses, trucks, EMUs, urban rail metro vehicles, and important parts and components; in strategic emerging industries, CSR has actively developed and successfully expanded its extended product market by using rail transit equipment know-how, including electric vehicles, wind power equipment, auto parts, marine crankshafts and diesel engines, high-power semiconductor components, industrial motors, engineering, machinery, etc. At present, CSR is a famous enterprise in the international rail transit equipment manufacturing industry and has an industry leading position in China. The research report released by the famous

State-owned Assets Supervision and Administration Commission

China South Railway Group Corporation

19 first-tier companies

China South Railway Co., Ltd. (57.11%)

Distributed in 11 provinces, cities and regions

3 complete construction companies 15 remainder factories

Shanghai A-share listed

Hong Kong H-share listed

Shenzhen A-share listed

Times New Material

Times Electrics

South Huitong

Listed in Toronto, Canada

British Dynex Corporation

Fig. 6.23 Organization Structure of China South Railway Group

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German rail transit consulting company SCI on April 27, 2012 shows that CSR has become the first in the new field of world rail equipment manufacturers around the world. At present, CSR has become the world’s largest R&D and manufacturing base for electric locomotives, the world’s largest and technology-leading high-speed EMU R&D and manufacturing base, the world’s leading high-power diesel locomotive and diesel R&D and manufacturing base, China’s largest railway high-end passenger car R&D and manufacturing base, global technology-leading and the largest railway freight car R&D and manufacturing base in Asia, and the world’s most productive urban rail metro vehicle manufacturing base, etc. 10 years ago, in the field of high-end equipment manufacturing, CSR was not known for its innovation, it was just a “chaser”. However, at present, CSR has established a complete system of independent development, scale manufacturing and standardized services in the fields of railway locomotives, buses, trucks, EMUs, urban rail metro vehicles and related components. Relying on innovation, it has formed an important position and influence in China’s rail transit equipment industry.

6.3.2 The Core Competence Foundation of China South Railway Group’s Innovation Ecosystem 1. Group core competence building based on core technologies and technical capabilities In terms of innovation, CSR has always emphasized the core competence building of the Group, which is led by core technologies and technical capabilities, and further builds its core competence through the establishment of internal technology and R&D systems. At present, CSR has a number of high-performance product technologies with independent intellectual property rights represented by high-speed EMUs and high-powered locomotives. It is awarded “Innovative Enterprise” by the Ministry of Science and Technology, the State-owned Assets Supervision and Administration Commission of the State Council, and the All-China Federation of Trade Unions. It has the National Engineering Center for Converter Technology, the National Engineering Laboratory for High-Speed Train System Integration, the State Key Laboratory of EMU and Locomotive Traction and Control, the National Engineering Technology Research Center for High-speed EMU Assembly, 4 national R&D and experimental institutions, 9 nationally recognized enterprise technology centers, 7 testing and testing centers approved by the National Laboratory Accreditation Committee, and 8 postdoctoral workstations. The company established the first overseas industrial power electronics R&D center in China’s rail transit equipment manufacturing industry in the US, and established a power semiconductor R&D center in the UK, which provided an important foundation and driven force for CSR’s years of innovative development and competitive advantage. Through years of technology accumulation and learning improvement, the foundation of CSR’s core competence lies in the formation of the core technology system

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based on the five technologies of vibration reduction technology, noise reduction technology, lightweight technology, insulation technology, and water treatment technology, and it is used to support the R&D and process improvement of the Group’s products. At the same time, around the development of core technologies, CSR continued to invest in R&D and successfully developed group technical capabilities in seven aspects: polymer material synthesis, polymer material compound improvement, system mechanism simulation analysis, vibration analysis, noise control, process equipment design, test analysis and evaluation, thus laid an important foundation for the formation and development of the Group’s core competencies. As a leading enterprise in the rail transportation equipment industry, CSR has become one of the 16 founding members of the Central Enterprise Electric Vehicle Industry Alliance. It has the core technology and industrialization capability of electric drive and is one of the largest new energy bus manufacturers in China. At the same time, it is also the only company in China that has mastered the R&D of IGBT chip, module packaging and system application. It has built a leading international 8-inch (1 inch = 0.0254 m) IGBT chip production line and put it into production. Based on the advantages accumulated by the existing core technologies, CSR has always emphasized the high investment in R&D and technical capabilities, and continued to promote the resources of the Group’s R&D and technical capabilities with a sales ratio of more than 5% per year, thus achieving a strong R&D and technical capabilities are the core competence advantages. Table 6.4 summarizes the performance characteristics of R&D and technical capabilities of CSR. 3. Core competence development based on technological innovation system Based on the core technology and R&D-led technical capability development, CSR Group further developed and built a core capability based on the technology innovation system, thereby further strengthening its core competence. On the overall level, China South Railway Group takes the Academia Sinica as the top-level coordination structure of the innovation system, integrates the research and organization resources of the China South Railway Group Economic Research Department, Technology Research Department, and Science and Technology Management Department, and brings together the CSR Group’s overseas R&D institutions and national R&D institutions. Organizational institutions such as state-level enterprise technology centers, provincial R&D institutions, provincial-level enterprise technology centers, postdoctoral workstations, and professional technical committees have formed the framework of China Southern Car Group’s layered technology innovation system, as shown in Fig. 6.24. The technology innovation system has 7 enterprise technology centers, 2 overseas R&D institutions, 7 post-doctoral workstations, and 8 provincial-level enterprise technology centers. It has built a relatively complete R&D organization with industry-leading levels, covering basic research and products. R&D, engineering design to simulation test verification and other relatively complete research and development chain, covering the whole machine products, key systems, key components research and development. At the same time, the system has 4 state-level experimental and research institutions, and 7 nationally recognized enterprise technology centers, which are in the leading position in the same industry in China.

Vibration reduction technology, noise reduction technology, lightweight technology, insulation technology, water treatment technology

There are 2 academicians of the Chinese Academy of Engineering, 5 national-level candidates for the “New Century Talents Project”, 141 experts enjoying special government allowances, 22 Zhan Tianyou Railway Technology Award winners, and 30 Mao Yisheng Railway Engineer Award winners, 16 chief experts of CSR, 98 CSR technical experts, 231 CSR top talents, 324 professor-level senior engineers, 3,270 senior engineers and 15,502 chief engineers and technicians

• • • •

• Have the comprehensive test capability in terms of system integration, structural strength, comfort and dynamics • Covers the life cycle of products such as R&D, manufacturing, and overhaul of rail transit equipment • Have international testing qualifications, develop an internationally advanced and relatively complete rail transit transportation equipment vehicle and component testing capability • Successfully build airtight vehicle body and components test bench, vehicle rolling comprehensive performance test bench, vehicle vibration simulation test bench, basic brake test bench, dynamic ring test line

• The number of patents ranks first in the domestic industry, and is also ranked among the top enterprises in the central machinery manufacturing industry. Currently, there are 4,840 valid patents • Has won 1 special prize for the National Science and Technology Progress Award, 2 first prizes and 6 s prizes • Was rated as “National Top 10 Innovative Enterprises” and won the “China Creativity Technology” Award • CRH380A EMU won the gold award in 2011 China Innovation Design Red Star Award • Became the chairman unit of China High Speed Train Industry Technology Innovation Alliance

Core technology building

Scientific and technological talent investment

Simulation capability

Test ability

R&D and technical capability results

(continued)

The ability to simulate and analyze complete vehicle systems and components for rail transit equipment research and development Covers more than 10 professional categories such as structural strength, vehicle dynamics, fluid mechanics, vibration noise, and process Able to do analysis and evaluation related to safety, reliability and comfort Provide effective guidance and support for product design, structural design, prototyping and assembly, vehicle performance evaluation and life prediction

Specific description and features

Main aspect

Table 6.4 Summary of related features of R&D and technical capabilities of CSR Group

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• 200 km/h EMU, 300 km/h EMU, 500 km/h EMU, CRH380A EMU • HXD1 high-power electric locomotive (8-axis 9 600 kW, traction 10,000–20,000 tons), HXD1B high-power electric locomotive (six-axis 9 600 kW, traction 5–6 thousand tons), Hexie N5 diesel locomotive (power 4 660 kW), HXD1C high-power electric locomotive (six-axis 7 200 kW, traction 4–5 thousand tons) • The latest international intermodal train, 25 T high-grade passenger train, Qinghai-Tibet railway passenger train • Beijing Metro Line 14 (Type A), Export Izmir Light Rail, Guangzhou Metro Line 5 (Linear Motor), Hong Kong Light Rail • New energy storage light rail vehicle, medium and low speed maglev train, CRH6 intercity EMU with a speed of 200 km per hour • X2H(K) double-deck container special train, GF70 type alumina powder tanker, 100-ton special coal-powered gondola, 360-ton well car

• Electric vehicles: Using the core technologies in electric drive control and motors, environmentally-friendly electric vehicles that meet the future direction of urban transportation was launched • Wind power generation equipment: research and development of wind power generation equipment by using core technologies such as electric drive, converter technology and electric motor. With the requirements of energy conservation and environmental protection, the future development of wind power generation is broad • Car accessories: using the expertise of the rail transit equipment industry to develop and manufacture auto parts, including auto booster parts, etc. • Marine crankshaft and diesel engine: using the professional experience and technology accumulated in the internal combustion engine of railway locomotives, mass production of crankshafts and diesel engines for marine internal combustion engines, among which medium and high-power marine crankshafts account for 80% of the market share of similar products • High-power semiconductor components: using proprietary technology in train converters to develop high-power semiconductor components for use in power transmission and transformation, metallurgy, etc. • Engineering machinery: using the expertise of the rail transit equipment industry to develop and manufacture large-scale construction machinery products, such as nonballasted-track construction machinery

Related business innovation product development

Source According to the information provided by China South Railway Group

Specific description and features

Main aspect

Core business innovation product development

Table 6.4 (continued)

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307 China South Railway Central Academy of Sciences

Economic Research Department

Overseas research and development institutions

Technical Research Department

Science and Technology Management Department

State Key Laboratory of Traction and Control of Locomotives and Motors

CSR Ziyang Motorcycle Co., Ltd. Technology Center CSR Qishuyan Locomotive Co., Ltd. Technology Center

Sichuan Rail Transit Braking Engineering Technology Research Center

CSR Qingdao Sifang Locomotive & Rolling Stock Co., Ltd. Technology Center

Henan Locomotive & Vehicle Engineering Technology Research Center

CSR Nanjing Puzhen Vehicle Co., Ltd. Technology Cente

Hunan Province Large-scale Power Equipment Composite Materials Engineering Research Center

Nanche Meishan Vehicle Co., Ltd. Technology Center Zhuzhou Times New Material Technology Co., Ltd. Technology Center

Hunan Province Shock Absorption and Noise Reduction Materials Engineering Technology Research Center Jiangsu Province Rail Transit Key Parts and Materials Technology Engineering Research Center Jiangsu Province High Speed Train Basic Brake System Key Components Engineering Technology Research Center

Nanche Changjiang Automobile Co., Ltd. Technical Center Nanche Sifang Automobile Co., Ltd. Technical Center Nanche Changjiang Automobile Co., Ltd. Technical Center

Postdoctoral Workstation CSR Zhuzhou Electric Locomotive Co., Ltd CSR Ziyang Motorcycle Co., Ltd CSR Yangtze River Vehicle Co., Ltd. Technology Center

Nanche Chengdu Locomotive Co., Ltd. Technical Center

CSR Qingdao Sifang Locomotive & Rolling Stock Co., Ltd

Nanche Shijiazhuang Automobile Co., Ltd. Technical Center

CSR Qishuyan Locomotive Co., Ltd

Nanche Qishuyan Locomotive Process Research Institute Technical Center

Nanche Meishan Vehicle Co., Ltd

Nanche Zhuzhou Motor Co., Ltd. Technical Center

CSR Zhuzhou Motor Vehicle Research Institute Co., Ltd

Technical Standardization Committee

High-speed train system integration national engineering laboratory National Engineering Research Center for Converter Technology

Provincial enterprise technical centers

China South Railway Technical Expert Committee

High Power Semiconductor R&D Center (UK)

Provincial R&D institutions Jiangsu Province Rail Transit Traction Power Equipment Engineering Technology Research Center

China South Railway Materials and Technology Research Center

CSR Zhuzhou Electric Locomotive Co., Ltd. Technology Center

Welding Technology Committee

National Enterprise Technology Center

National High-Speed EMU Assembly Engineering Technology Research Center

Non-destructive testing technical committee

National R&D institution

Industrial Power Electronics R&D Center (USA)

Nanche Huitong Co., Ltd. Technical Center

Jiangsu Rail Transit Maintenance Machinery Engineering Technology Research Center

Fig. 6.24 CSR’s innovation system with R&D as its core. Source According to the information provided by China South Railway Group

Based on the overall structure of the Group’s technology innovation system, CSR further developed and built a collaborative simulation platform, a test verification system and a technical standardization information platform to further improve and optimize the technical innovation system’s support for core capabilities. First, China South Railway Group has set up a collaborative simulation platform to optimize the integration of simulation analysis resources distributed in subsidiaries, establish a unified management and scheduling mechanism for high-performance computing equipment, expand the knowledge reserve in the field of simulation analysis, and improve the overall CSR. Simulation analysis capabilities were formed. Secondly, China South Railway Group has made efforts to build a test verification system and built a three-level group test verification system, as shown in Fig. 6.25. Among them, the first-level test verifies the routine test around the subsidiary; the second-level test verifies the trial of the CSR Group’s overall planning, fixed-point construction and resource sharing; the third-level test verifies that the investment can be outsourced for large-scale investment and low frequency of use. The products and technologies included in the test verification system include buses, trailers, internal combustion locomotives, electric locomotives, wagons, urban rail vehicles, electric transmission control systems, mechanical drive systems, braking technology, diesel engines, common technology and new industries. Finally, the China Southern Railway Group further developed the technical standardization information platform, and established the China Southern Vehicle Three-Level Technical Standardization Organization on the basis of this platform,

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Third-level test verification system

First-level test verification:First-level test verification: Subsidiary routine test Two-level test verification: China Southern CMU planning, fixed-point construction, resource sharing test Three-level test verification: an investment that can be outsourced with a large investment scale and low frequency of use New industries

Shared technology

Diesel engine

Brake technology

Mechanical transmission system

Electric transmission control system

Urban Rail Vehicle

Truck

Electric locomotives

Internal combustion locomotive

Bus, power unit

Fig. 6.25 China South Railway Group Test Verification System. Source According to the information provided by China South Railway Group

built a system of technical standards for high-speed trailers, high-power locomotives, urban rail vehicles, buses and trucks, covering national standards (20,776), industry standards (10,623), international standards (15,199) and foreign standards)Technical standards database for quasi (19,236) and South vehicle standards (124), accommodating a total of 65,958. The establishment and operation of the collaborative simulation platform, test verification system and technical standardization information platform have further optimized and enhanced the competitive advantage of CSR Group’s core capabilities.

6.3.3 Construction and Development of China South Railway Group’s Innovation Ecosystem13 1. Industrial Background and Competitive Environment of China South Railway Innovation Ecosystem The main business of China South Railway Group mainly focuses on the output of related products and services of the rail transit equipment industry. Rail transportation is a complex system that combines multi-professional and multi-type, with high throughput, fast speed, safety, punctuality, environmental protection, energy saving and land use. According to incomplete statistics, the global annual market transaction 13

The main content of this section comes from: Chen J, Zhang RZ, Liu LJ. China South Locomotive Innovation Road, 2015. Partially deleted, revised and supplemented.

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in the field of rail transportation equipment is nearly 100 billion euros. There are various types of traction power for rail transport equipment, which can be divided into electric power, internal combustion, steam type, magnetic levitation, etc. From the operational area, it can also be divided into railway equipment and urban rail equipment. In the area of railway transportation, before 1949, in addition to Tangshan to Xu Gichuang and Jingzhang railways were surveyed, designed and constructed by the Chinese themselves. Most of the railway lines were built by Britain, Japan, Germany and other European and American countries. It was not until August 1, 1952, when the first steam locomotive made entirely independently in China came to an end to this humiliating history. After the reform and opening-up, the central government realized that “railway transport has become an important reason for constraining national economic development”. Thus, from 1997 to 2007, China’s railways implemented six major speeds, which brought about profound changes in the traditional transport equipment and organization of Chinese railways, and directly contributed to the comprehensive upgrading and technological innovation of bridge tunnels, communication signals, traction power supply, dispatch command, vehicle equipment upgrading and technological innovation. During this period, all of China’s motorcycle technology was domestically developed. At the end of 2014, the total mileage of China’s railways exceeded 110,000 km, of which the high-speed railway operated more than 15,000 km. At the same time, China’s high-speed railway investment has led to the rapid development of China’s railway equipment, and the construction of high-speed railways and equipment of high-speed railways have also injected strong momentum into economic development. Rail transport is moving towards high speed, safe, reliable, intelligent, and green energy-saving and environmental protection. It provides fast, more comfortable, and more environmentally friendly transport services for travelers. In the area of urban rail transportation, urban rail transport is a high-volume public transport that is usually powered by electric power and using wheel-rail mode. It can be divided into underground railways, urban light rail and suburban railways. In 1965, China began construction of the first phase of the Beijing Metro, the first urban rail transport system in the mainland, and opened its doors in 1969. As of 2014, 53 cities in China had planned more than 492 urban rail lines, with a total mileage of over 18,000 km. China’s urbanization has accelerated, the overall scale of cities has expanded rapidly, and the role of urban rail transportation has become more prominent, and the demand for metro trains has increased. China has an average annual demand of nearly 5,500 urban rail trains. In developing urban rail transport, China has always adhered to the policy of localization, and has effectively adopted many new technologies and new equipment. The cost of metro per kilometer has also been reduced from 700 to 800 million yuan in the initial period to 400 million yuan to RMB 500 million. However, the construction and development of urban rail transport in China is still at an early stage compared with large cities in the world. Urban Rail Transit is developing in a multi-varieties, personalized and rapid direction, and requires cost-effective, short R&D cycles, maintenance-free and low life costs, while constantly adopting new technologies, new materials and new processes.

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Against this background, China Southern Railway, as a young industry organization in the early decade of development, faces fierce competition worldwide. In the world, high-speed trains, represented by Japan, France, Germany and the United States, Canada and Australia, represent the world’s trend of high-speed passenger transport and heavy cargo transport. The main manufacturers of high-speed tram units include Siemens, Alstom, Bombardier, Kawasaki Heavy Industries and CAF. Their market shares are: Siemens 13 per cent; Alstom 18 per cent; Bombardier 24 per cent; General Electric Transport Systems Group around 11 per cent; and Kawasaki Heavy Industries 9 per cent. Based on the analysis of the global market, the main competitors of CSR include Bombardier of Canada, Alstom of France, Siemens of Germany, General Electric of the United States and Kawasaki Heavy Industries of Japan. The basic situation of its competitors is described below. By building and developing an innovation ecosystem based on core competencies, CSR finally stands out in the fierce global market competition. (1) Bombardier, Canada. Bombardier gained opportunities in the locomotive sector through mergers and acquisitions. It has acquired the French Transport Equipment Industry Corporation, the Montreal Locomotive Plant of Alcoa, the former American bus company Pullman, the Belgian BN Technical Structures and Railway Equipment Company, ANF Industries and Adtranz, and has become the world’s largest supplier of locomotive vehicles. Bombardier combines technologies such as aerodynamics, acoustics, noise/vibration control. In addition to this, Bombardier is the only company in the world to apply the technical reliability and maintenance management systems of aviation and related repair technologies to railway equipment. The ZEFIRO train, designed by Bombardier, reaches 350 km per hour. In addition, Bombardier worked with Siemens to develop the ICE train and the Iberic train in cooperation with TALGO, a Spanish railway manufacturer. Examples include the 2008 Beijing Olympic Games and the 2010 Shanghai World Expo, the fully automated passenger rapid transit system at Beijing Airport. In 2009, Qingdao Shifang–Bombardier Railway Transportation Equipment Co., Ltd. (BST) won orders for 80 high-speed trains (1,120 trains) from the Ministry of Railways, with a total value of about RMB 27.4 billion, of which Bombardier’s share is about RMB 13.5 billion. In other markets, 70% of trains throughout Mexico are supplied by Bombardier and are designed, manufactured and serviced domestically. In 2014, Bombardier was a strong competitor for China’s South Automobile at the time of the tender for the high-speed railway in Mexico. (2) Alstom, France. Alstom began to grow through the acquisition of railway equipment manufacturing companies, and its transport systems business began in the late 1980s with more than 80,000 employees in more than 70 countries. Alstom invests 4% of its sales revenue in R&D and has more than 25 technology and R&D centers around the world. Alstom specializes in approaching customers and providing the right solution. Its active development of signal systems, infrastructure and related maintenance services reinforces its position in the market of high- and ultra-high-speed trains. In 2004, Alstom cooperated with Changke

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Co., Ltd. (Changchun Railway Co., Ltd.) and obtained 60 sets of 200 km/h EMUs from the Ministry of Railways; In 2006, a traction motor joint venture was established with Yongji Motor Factory. In May 2015, Alstom’s financial statement data showed that new orders originated from large contracts such as the South African Rail Transit project, Qatar and Australia Tramway project, the Paris Metro train and Mexico’s full metro system. Alstom earned a large number of orders from emerging markets based on the technical advantages of signal and control systems, with reserve orders totaling e28 billion, equivalent to 55 months of sales. (3) Siemens, Germany. Siemens Transportation Systems Department was established in 1989. It entered the field by mergers and acquisitions of railway equipment manufacturing enterprises. Siemens has more than 180 affiliates worldwide and has over 2,000 innovative partnerships with approximately 1,000 universities. Siemens relies on the Innovation Acceleration Process and Siemens Technology Accelerator to connect around 1,200 technology-oriented communities around the world to build a vast network of technological innovation. In China, Siemens co-invested with Zhuzhou Electric Locomotive Plant (Zhuzhou Electric Locomotive Factory) and Zhuzhou Electric Locomotive Research Institute (Zhuzhou Electric Locomotive Research Institute). Since 1994, it has provided power supply, operation control and passenger information systems for the Guangzhou Metro, delivered 40 metro trains; provided vehicles, operation control, power supply, telecommunications and other infrastructure equipment for the Shanghai Metro project; provided signal and control equipment for the first subway line in Nanjing; and provided drive, operation control and communication technology, power supply and power rail for Shanghai Maglev high-speed trains. (4) GE Transportation Systems Group, GE. With more than 100 years of history, GE’s GE Transportation Systems Group is the world’s leading supplier of rail, urban rail, marine, drilling, mining and wind technology. GE Transport Systems Group’s strategy focuses on technology, services, customer centrality and globalization, and maintains a leading position in the field by reducing costs and risks in the development of new products through advanced information technology systems and technology resources available in various countries. GE Transportation Systems Group has developed U50 high power-DC electric drive diesel locomotive, energy-saving Dash7 diesel locomotive, Dash8 microcomputercontrolled diesel locomotive, Dash9 AC-DC drive diesel locomotive with HiAd high-adhesive bogie, AC4400 3281 kW and AC6000 4447 kW high-power AC drive diesel locomotives have developed efficient, energy-saving and environmentally friendly innovative diesel locomotives in recent years. China imported the first 420 ND5 diesel engines manufactured by GE Transportation Systems Group around 1980. GE Transportation Systems Group signed a contract with the former Ministry of Railways for 300 EVolution® series of Chinese trunk locomotives. In 2002, General Electric Transport Systems (China) Co., Ltd. was established. In 2007, GE established a joint venture with Qishuyan Locomotive Co., Ltd., a subsidiary of China Southern Vehicle. In the same year,

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GE Transportation Systems Group signed a cooperation framework agreement with China Southern Cargo to establish a joint venture in the United States to promote high-speed rail and other rail transport technologies in the US market. General Electric has offices in Beijing, Shanghai, Datong, Chengdu, Changzhou and Golmud. (5) Japan Kawasaki Heavy Industries. Japan’s Kawasaki Heavy Industries started in the Meiji Restoration era and focused on heavy industry. Kawasaki Heavy Industries Co., Ltd. has a registered capital of 104.328 billion yen (about RMB 5.4 billion) and sales of 88.963 billion yen (about 46.1 billion yuan). The Group includes vehicles, aerospace companies, gas turbines, machinery companies, general-purpose machinery companies, ship companies and other sectors. Our values are to meet the diverse needs of our customers, to climb the top of technology and to pursue independent innovation. Kawasaki Heavy Industries adopts “Matrix Operation”, and provides technical personnel with key technologies for product development improvement projects in various business sectors, including group companies. As a task team, we are ready to support innovative projects. Kawasaki Heavy Industries weave advanced products and cutting-edge technologies for the future, using the technologies inherent in the products of each business department and the basic and system technologies of the Technology Development Division. Kawasaki Heavy Industries uses lean production system and efficient organization to maximize innovation efficiency. 2. The evolution of China South Railway’s innovation ecosystem based on core competencies (1) Development Phase I: Ecological resource aggregation based on business integration Zheng Changyi, the head of China South Railway Group, described the company’s founding background very early: “On the Chinese railway, the early locomotives were foreign locomotives, and the enterprises established in various countries were engaged in orbit maintenance or locomotive repair”. Compared with these railway equipment manufacturing industries in North America, at least 30 years behind, it is exaggerated to say that 50 years behind”. After the establishment of CSR, the first thing facing the problem is the backwardness of technology. In the layout of CSR, the youngest subsidiary has a history of more than 50 years. The history of the six subsidiaries is even more than 100 years. There are more than 300 branches with more than 150,000 people. However, “the main business is not strong, the sideline business is not strong, the resources are scattered”, “the business is repeated, and every company is large and complete” has made CSR face a huge bottleneck in the initial development period. In addition, seven truck repair companies under China CSR are located in different regions; the three subsidiaries that produce diesel locomotives—Sifang, Qishuyan and Ziyang, are also unable to catch up with the business scale of a division of General Electric. In this context, the business integration of China South Railway Promotion Group seeks to

6.3 The Case of CSR Group

Qishuyan factory

313

Truck repair company Diesel locomotive company

Ziyang Factory Tongling

Wuhan

Zhuzhou

Qingdao Sifang

Gear company

Truck manufactu ring company

Changzhou

Locomotive company

CSR start-up integration stage

Diesel locomotive company

Locomotive repair service company

Electric locomotive company

Changzhou Qishuyan Factory

Sichuan Ziyang Factory

Zhuzhou Institute

Fig. 6.26 China South Railway Group’s ecological resource agglomeration based on business integration

build the core ecosystem of the company’s establishment through the accumulation of resources in the ecosystem, as shown in Fig. 6.26. The principle of China CSR business integration is “four modernizations”, namely, intensive host products, specialization of important parts, marketization of general spare parts, and socialization of general projects. The host products, namely the locomotive, bogie, control system and other rail train operating systems, through intensive development, reduce the repetitive layout and enhance the control of the core technology. The important parts are special parts in the locomotive field. They need to have high technical thresholds and professional production capacity, which are produced by CSR. General spare parts include general accessories such as bolts, washers, flanged shafts, etc., which are connected or sealed by locomotive components. Administrative functions such as logistics services implement socialized operations in the process of divestiture of sideline businesses. In the integration, the main products are arranged according to electric locomotives, diesel locomotives, trucks and gear transmissions to improve the degree of intensification. Take Changzhou Qi Shu Yan, Sichuan Ziyang and Zhuzhou as the core, and carry out the integration of electric locomotives. High-power AC motor vehicle technology shifts from Zhuzhou base to Ziyang, and Ziyang base from internal combustion locomotive manufacturing to high-level electric locomotive development. The technology core of Quad shares shifted from internal combustion engines to the bus sector because “it is very difficult to industrialize internal combustion engines and the amount of capital invested, so it is difficult to form a high-level volume product”. Although for old employees, “it is like abandoning their children”,

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but due to the need to “focus on the development of high-tech products that represent the development trend of the times”, Quad Shares abandoned the traditional internal combustion power-based business, and established Qingdao Sifang Locomotive Co., Ltd. When China South Railways integrated nine truck manufacturing companies, five companies in Zhuzhou, Changzhou, Tongling and Wuhan also merged to form Changjiang Vehicle Co., Ltd., while the rest were engaged in locomotive repair services. Changjiang Vehicle Co., Ltd. established four branches, which formed a professional division of labor, scale production and concentrated resources in vehicle manufacturing, repair, and key components, and formed a R&D and manufacturing base for 11,000 new trucks, 17,000 repair trucks and 4,000 tons of export spare parts. In addition, China South Vehicle will “judge the efficiency” of a batch of factories such as a wood factory belonging to Quad AG. After business integration, the total number of CSR-level sub-enterprises has been reduced from 21 to 19 (newly established), while the number of enterprises below the third level has been reduced from more than 400 in 2000 to more than 90. The number of people was 15,000, and the work of separating and reorganizing the main and auxiliary departments was completed. Since then, it has fully launched the “2211” project that is in line with international rail equipment, that is, “two highs, two fast, one heavy and one light.” “Two highs” refers to high-speed and highaltitude vehicles. “Two fast” refers to fast passenger transportation and fast freight; “one heavy” refers to freight heavy load, and “one light” refers to light rail subway vehicles. (2) Development Phase II: Establishment and expansion of ecological partnership based on technology introduction In the business integration, CSR has determined its development goals: grasping technology, grasping management, revitalizing national industry, and “taking the world first”. To this end, CSR has made independent innovation attempts, such as the technical improvement of power concentration and power-distributed EMUs. The plateau train was put into operation in 2007, and the DF11G diesel locomotive, SS8 and SS92 electric locomotives were launched; 70 tons, 80 tons of heavy-duty trucks, and began to try on light rail. However, the self-owned technology attempts to face many bottlenecks, and it is “unrealistic” to rapidly shorten the technological gap with developed countries, and it is difficult to obtain major innovation breakthroughs in a single organizational form. In accordance with the request of the State Council “to introduce advanced technologies from abroad, jointly design and produce, and create Chinese brands”, under the leadership of the former Ministry of Railways, China’s rail transportation equipment manufacturing industry has launched an unprecedented large-scale technology introduction. It is only CSR that is quite cautious in its specific operations. “Joint venture is not merged”. In the early stages of the reform, joint ventures were a common way of introducing technology. However, there have been cases of failure in the introduction of technology after joint ventures in different industries in China. “Some Chinese enterprises have lost their brand, some have lost their R&D

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team, others have simply been merged and acquired and disappeared!” Therefore, at the time of technology introduction, CSR insisted on retaining the independence and voice of its own brand. In addition, there is a need to guarantee conversion rates for high-speed locomotives, high-power electric locomotives, internal combustion locomotives, total range, vehicle body, and steering gear (according to the requirements of the Development and Reform Commission at the time, the technology transfer rate was higher than 80%). At the same time, China South Railway plans to invest in supporting funds to support the digestion and absorption of imported technologies and avoid dependence on technology importers. Zhuzhou and Zhuji Plant have been in contact with Siemens almost at the same time and have discussed cooperation matters, and there has been little progress. Siemens adheres to the “non-competitive” clause. The core of the project is that after the establishment of the joint venture company, the Zhuji plant must have a production capacity of 600,000 locomotives. After the establishment, it cannot compete with the joint venture company on AC drive electric locomotive products. The DC transmission locomotive is the “sunset” product that is about to withdraw from the historical stage. The AC locomotive is the future development direction. If you agree with Siemens’ requirements, then the exchange locomotive technology cannot be transferred from the joint venture company, and it is not allowed to cooperate with the third party. The Zhuji plant will become a subsidiary of the joint venture company. In this regard, the strategy adopted by CSR is that the factory does not produce and sell AC locomotives until the 600,000 locomotive production programs of the joint venture has not been realized, but it should not be restricted after reaching the production program, because Siemens has the highest annual output which is only more than 100 units. In this way, the R&D of China South Railway AC locomotive has taken two steps of domestic development and foreign cooperation. First, it is based on the prototype AC4000 electric locomotive, and the second is to cooperate with foreign countries. Zhao Xiaogang, the former general manager of the Zhuji Plant (the former chairman of CSR), proposed to research the independent and innovative AC locomotive before the establishment of the joint venture. However, due to the tight time, the Zhuji plant began to contact foreign companies other than Siemens, such as Alstom France. Therefore, the specific work was carried out by a project team, and the method of joint design, cooperative production and technology transfer with foreign companies was adopted, and the prototype car of the exchange locomotive was produced in one year. The introduction and independent research and development have become the basic principles of CSR technology innovation. Later, Zhuzhou Times Group Co., Ltd. established Zhuzhou Times Group Co., Ltd., starting from 2004, under the unified deployment of the Ministry of Railways, the counterparts undertook the introduction of Mitsubishi Electric, Siemens and General Electric technology, on EMUs, highpower AC drive electric locomotives and the key technologies of high-power AC drive diesel locomotives are introduced, digested, absorbed and re-innovated. In the introduction of China South Railway strategic technology, Sifang shares independently undertake negotiations on the introduction of complete vehicles with

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foreign companies. The regulations for the introduction of bidding are: the technology must be fully transferred, and the content, schedule and effectiveness of the transfer must be strictly regulated; the localization rate of the EMUs for bidding should be more than 70%, and Chinese brands should be used. Despite the harsh conditions, foreign similar manufacturers are still eager to try, after all, this is a good opportunity to open up the Chinese market. After experiencing different negotiations, the goal of technology introduction is aimed at Japan. Zheng Changyi believes that this is a historical formation. As early as the 1980s, Sifang shares became a friendly factory with Kawasaki Heavy Industries. Mitsubishi and Hitachi have cooperated with many CSR companies in China. Japan’s Kawasaki Heavy Industries is one of several foreign companies with locomotive manufacturing technology at the world’s advanced level; Four shares and Kawasaki Heavy Industries have a history of cooperation for nearly 20 years. Four shares have received technology transfer from Kawasaki Heavy Industries Wide Scaffolding, Stainless Steel Body Design and Production, as well as cooperation with Kawasaki Heavy Industries to produce steering units exported to JR Japan. The model introduced by Quad shares is E21000, known as “Shizuki” in Japan, the domestic model is CRH2, and the former Ministry of Railways named “Harmony”. The model is based on the Shinkansen E21000 as a prototype, 200 km per hour, 60 columns ordered by the former Ministry of Railways, four shares were transferred and localized, paying about 600 million yuan in technology transfer fees. China will become one of the few countries in the world to master the 200-km-per-hour technology, which will be of great significance for improving the manufacturing level and manufacturing capacity of China’s locomotive industry, according to the China Economic Daily. Although the model is based on the technology supported by the E2-1000 and has a precedent of running 300 km in Japan, Japan only agrees to transfer the technology at speeds of 200 km per hour, and does not agree to the transfer of technology above 300 km per hour. (3) Development Phase III: Development of Innovative Ecosystem Based on Technology Digestion Absorption and Reinnovation Based on the foundation of overseas eco-partnership technology, CSR Group focuses on the absorption of technology and its heterogeneous ecological partners to realize the re-innovation of CRH380A’s core products through collaborative innovation, outsourcing system design and deep collaborative innovation. (1) Eco-partnership to innovate. The design of high-speed tram units is a huge system project. A single drawing, from the proposal to the final finalization, designers have to go through repeated research and validation. A whole train of high-speed trailers involved more than 40,000 parts and needed tens of thousands of drawings. In the process of key technology breakthroughs, CSR has taken the Quartet shares as its core and closely cooperated with 21 domestic famous universities and research institutes. It is also designed, simulated, and tested with the support of the National Engineering Laboratory and the National Engineering Center. It is also jointly developed with 41 domestic supporting companies such as CSR Times Electric and CSR

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Electric. In the collaborative innovation of ecosystem partners, CSR works in three aspects, i.e. common basic technology, key systems and component development, and test verification technology. In terms of common basic technology, Sifang shares research on wheel-rail relationship, bow-gate yarn, fluid–solid coupling relationship, and general comfort in high-speed conditions with Southwest Jiaotong University, Peking University, and Zhejiang University. In the development of the car body, it cooperated with Beijing Jiaotong University, Dalian Polytechnic and Tongji University to improve the car body strength and anti-overturning ability, re-match the car body parts and the overall modal parameters to meet the vehicle body comfort requirements under high-speed operating conditions. In the case of bogies, with the participation of Tsinghua University, and by optimizing the parameters of the suspension system, a high-speed bogie that meets the axle weight of No. 15 was developed. In terms of traction braking, Sifang Co., Ltd. cooperated with CSR Times Electric, CSR Motor, Qishuyan Institute, Nanjing Puzhen Haitai, Tongji University, etc. to develop traction converters and motors with the goal of improving traction power and optimizing speed control. In addition to cooperating with universities, the research on key materials also cooperates with Nanshan Aluminum and Longkou Jungle on 12 major items and 39 small components of key models and components to reduce dependence on imported raw materials. For example, the body bending test increased by 51%, the torsional stiffness increased by 38%; the traction system unit power increased by 23%, and the total weight increased by only 10%. Due to uncertainties, cooperation with institutions is carried out in the form of curriculum development, but these topics are often exploratory. “Some colleges arrive at the scene to clarify the development or test mission objectives and operating environment”. “There is a professional testing environment in research institutes, and some research team members are on site”. In this process, Sifang shares are both innovators and technology integrators. These “sub-systems, which are subdivided into more than a thousand items, are all carried out around CRH380A”. (2) Outsourcing system design. The design of the front is often the key to ensuring train safety, ride comfort and energy saving. In the R&D of CRH380A, the design plan was collected for universities and research institutions in the form of “tendering”. Sifang shares have won more than 50 front-end design plans. After the primary election, 20 of them were used as alternatives. After evaluating the outsourcing design plan, CSR Group considered the traditional Chinese aesthetic of “Tianyuan Place” and believed that high-speed rail locomotives also need to have the characteristics of streamlines. China CSR Group carried out a total of 75 simulation calculations of 17 types, 760 aerodynamic tests in different operating environments and 60 noise wind tunnels, and completed 22-line tests at 520 points, and finally screened the technical performance of the new head type.has reached the leading international level. The CRH380A front design has also won the Red Dot Gold Award in the Chinese design industry “Oscar”. In this way, CRH380A has undergone nine major steps of program design, technical design, construction design, prototype, test validation, design

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improvement, mass production, operation tracking, continuous improvement, more than 450 simulation calculations, more than 1,000 ground tests and more than 2,800-line tests. The line experiment has reached more than 2 million km, equivalent to more than 50 cycles around the Earth, fully validating the technical performance of the CRH380A. The whole process is also a process of interaction between R&D personnel of China South Railway Group and external R&D institutions and industry scientists. (3) In-depth collaborative innovation. CRH380A research and development involves four theories and ten core technologies, namely the core basic theory. Four theories include wheel rail relationship theory, bow net relationship theory, aerodynamics theory, control theory. Ten core technologies include system integration technology, electric transmission and control technology, information technology, lightweight technology, test verification technology, safety technology, comfort technology, air tightness technology, electromagnetic compatibility technology, product reliability technology. In addition, there are underlying technologies for high-power semiconductor components and industrial motor control innovations. After the development of CRH380A, China South Railway Co., Ltd. relied on Zhuzhou to start the application of traction technology and network control technology and core technology, and extended to the “horizontal” and “vertical” directions of the industrial ecological chain. Horizontal targeting of high-power electric locomotives, high-power combustion locomotives, buses, metro vehicles, light rail vehicles, heavy duty open cars, heavy duty trolleys, heavy duty caravans, heavy-duty tankers, etc., so that different CRH380A solutions are extended to different applications. In longitudinal terms, special attention is paid to dedicated control elements, which are continuous expertise advantages. This is also a barrier to entrying into the locomotive sector and a direction of innovation. After several investigations and evaluations, based on the system development project of “Electric Transmission and Control System for EMUs with a Speed of More Than 300 km”, CSR and Dennix have carried out in-depth collaborative innovation cooperation. Dennis has a 50-year history of developing and developing highpower semiconductor devices and power controllers, and has technical advantages in aluminum ion injection process and double-angle table modeling technology. It is one of the few companies in the world to master high voltage insulation bipolar crystal regulator manufacturing technology (IGBT technology). Denix’s development is supported by a huge application and has a negotiated price advantage. According to the agreement, Southern Car Times Electric will invest $166.2 million (about RMB 110 million) to acquire 75% of the stake in Dennis. The plant-machine plant of China South Railway Co., Ltd. has also developed supporting technologies and products with complete independent ownership of brakes and signals with Westinghouse Brake Company and British Invensys Signal Company. On January 10, 2011, CSR Times successfully acquired 100% of the Australian Deke Company for A$2.835 million (approximately RMB 18.8 million). On the one hand, CSR Times New Materials absorbs the track design technology

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of Delke, and on the other hand, it supports the research and development of Delke technology and promotes technological synergy based on its existing research and development platforms such as detection and analysis. Beijing South Vehicle Era Locomotive Machinery Co., Ltd., a subsidiary of Zhuzhou, China Southern Vehicle Company, signed an equity purchase and concession contract with Boramtec Bohr und RammTechnik Berlin GmbH in Berlin, Germany, to obtain the German E + M Drilling Technologies GmbH 55% control, targeting and mastering high-quality resources that play a key role in industrial capacity development and have a beneficial impact on the optimization of industrial structure.

6.3.4 Case Summary As a “business card” for China’s independent innovation to the world, and a leading company in the global rail transit equipment industry, CSR Group further supports the core capabilities of the Group through the development of core technologies and technological capabilities, as well as the development of technological innovation systems. Over the years, the core capabilities of core technology and technology innovation systems have been built. Based on its core competencies, CSR Group has achieved the three-stage development of the innovative ecosystem based on core competencies through the integration and accumulation of decentralized ecological resources, the introduction and learning of global ecological partners, and the absorption and re-innovation of technology by global and domestic innovation ecosystem partners. China Southern Motor has laid an important foundation for gaining an international competitive advantage.

6.4 The Case of Huawei 6.4.1 Introduction and Development of Huawei Company Huawei Technologies Co., Ltd. (Huawei) was formally incorporated in Shenzhen, China in 1988. Huawei is a private communications technology company that manufactures and sells communication equipment, headquartered in Bantian Huawei base in Longgang District, Shenzhen. After nearly 30 years of technology accumulation and development, Huawei has grown from a private communications technology company to the world’s largest provider of telecommunication network solutions and the second largest provider of telecommunications base station equipment. Huawei’s main business involves products and solutions. Huawei’s product business involves switching networks, transmission networks, wireless and wired fixed access networks and data communication networks and wireless end products in communication networks. It provides hardware equipment, software, services and

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solutions for communication operators and professional network owners around the world. As a leading global provider of telecom solutions, Huawei focuses on longterm partnerships with operators. Its products and solutions cover mobile, broadband, IP, optical network, network energy, telecom value-added services and terminals, and are committed to providing all-IP converged solutions that allow end users to enjoy a consistent communication experience at any time and anywhere, and to facilitate communication and enrich people’s lives. At present, Huawei products and solutions have been applied to more than 100 countries around the world, serving 45 of the world’s top 50 operators and one third of the world’s population, specifically involving the following ten aspects: ➀Wireless access; ➁Fixed access; ➂ Core network; ➃ Transmission network; ➄ Data communication; ➅Energy and infrastructure; ➆Business and software; ➇(OSS) (Operations support system); ➈Secure storage; and ➉Huawei terminals. After more than 20 years of development, Huawei gradually grew from a technology company representing Hong Kong’s program-controlled switches to an international communications giant. Table 6.5 summarizes the development history of Huawei.

6.4.2 The Core Competence Foundation of Huawei’s Innovation Ecosystem14 1. Technical elements of core competencies: continuous core technology development and R&D capabilities Huawei enhances core competencies through continuous core technology development and R&D capabilities. Starting in 1992, Huawei’s first R&D product HJD48 small analog space split user switch was launched to the market. Next, Huawei’s second independent product, JKL000, is on the market. It is through the development of HJD48 to JKL000 that we have accumulated valuable experience in the subsequent development of C & C08 digital program switches. In 1994, Huawei developed and produced its own C & C08 digital program control switches were launched into the market. It has gradually gained a leading position in the domestic telecommunications market. In the twenty-first century, Huawei further implements diversified and internationalized operations. In terms of product structure, Huawei has expanded into 23 business areas in optical communication devices, mobile communication devices, IP devices and value-added services, and has developed new products that can be put on the market. At the technical level, Huawei has developed international leading technology products such as SDH optical network, access network, smart network, signaling network, and telecom-grade Internet access server. DWDM, C & C08iNet integrated network platform, router, mobile communication and other system products have reached the world’s advanced level. Chip design technology reached below 14

This section is mainly from the internal research and project report of the author’s research team.

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Table 6.5 History of Huawei Time node

Examples of Important Events

1988

Huawei was founded in Shenzhen, starting with 20,000 yuan

1989

PBX Huawei develops PBX independently

1993

Launched C & C08 Digital Programmated Switches

1995

Established Intellectual Property Department, Beijing R&D Center; R&D & D Center; R&D & D, sales revenue reached 1.5 billion yuan

1996

Launched integrated service access network and optical network SDH equipment; established partnership with Hutchison Whampoa Hong Kong; established Shanghai R&D center

1997

Launched GSM equipment. Then gradually established a joint research and development lab with Texas Instruments, Motorola, IBM, Intel, Agere Systems, Sun Microsystems, Altera, Qualcomm, Infineon and Microsoft

1997

Beginning to become a partner with IBM, Towers Perrin, The Hay Group, PricewaterhouseCoppers (PWC) and Fraunhofer-Gesellschaft (FhG)

1998

Expanding the product market to major cities across the country

1999

Became China Mobile’s main supplier in the national CAMEL Phase II intelligent network, which was the largest and most advanced intelligent network in the world at that time; established the Bangalore R&D Center

2000

Contract sales exceeded US$2.65 billion; international expansion began, sales revenue in overseas markets reached US$100 million; R&D centers were established in Silicon Valley and Dallas, USA

2001

Gbps SDH system started commercial in Berlin, Germany

2002

International sales increased by 68% and passed UL’s TL9000 quality management system certification

2003

Established a joint venture with 3COM to focus on enterprise data network solutions

2004

Established a joint venture with Siemens to develop TD-SCDMA technology for the Chinese market; won the national backbone network optimization contract of China Telecom; won the contract to provide UMTS network equipment for Dutch operator Telfort

2005

Signed a Mutual Merchandise Agreement with Marconi, UK Corporation; won 3G network for CDMA2000 in Thailand, valued at US $187 million; became the preferred 21CN network provider of British Telecom (BT) to provide MSAN components and transmission equipment for BT 21CN network

2006

Leader of IP-based FMC solutions; preferred supplier for the new round of 3G network construction; largest contract in Huawei’s history (UFONE, a subsidiary of UAE Telecom Pakistan, awarded Huawei’s national GSM contract for over US $550 million); sale of all H3C shares; and joint efforts to build a global 3G solution

2007

Contract sales reached $16 billion

2008

Huawei’s mainstream products have served leading operators in developed markets such as Europe, North America and Japan, and have steadily increased their share in China and emerging markets (continued)

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Table 6.5 (continued) Time node

Examples of Important Events

2009

Teliasonera, Nordic telecom operator, announces two 4G LTE commercial network contracts. Huawei, China, and Ericsson, Sweden, will build LTE mobile broadband in Europe, which is the world’s first commercial LTE network

2010

First time in Global Fortune 500 companies, ranked 29th among IT companies (397 global)

2011

Counterattack on Motorola’s infringement claim, finally won the case and received compensation for Motorola’s intellectual property rights

2012

In the 2011 fiscal year revenue of US $3,1,543 billion, the third time in Global Fortune 500

2014

Sales reached $46 billion, far exceeding Ericsson, almost equalizing Cisco

2015

More than 10% of annual sales revenue is invested in R&D, and more than 45% of 150,000 employees are engaged in innovation, research and development. Huawei holds core positions in more than 170 standard and open source organizations

2016

Annual sales revenue reached RMB 520 billion, up 32% year-on-year

0.18 microns. TELLIN Smart Network won the National Science and Technology Progress Award in 2001. Based on continuous research and development of core technologies, Huawei has accumulated global technological advantages in the next generation of communications, future data center, artificial intelligence, battery, and video. By the end of 2015, Huawei has received 50,377 patents, 52,550 patents in China, 30,613 applications for foreign patents, and invention patents. There are 90% of the total number of patents.15 Based on core technologies and related technical fields, Huawei vigorously develops technology research and development, and attaches great importance to R&D investment and R&D capabilities. This is based on two factors: on the one hand, Huawei is in the telecommunications industry. The core of its competitive advantage comes from technology, and enterprises that do not have technological advantages cannot survive in the industry on a sustainable basis. On the other hand, the high yield of products and solutions output in the telecom industry allows Huawei to obtain a high profit return and accumulate a large amount of R&D investment. Therefore, since the founding of Huawei, the company has been investing in core technology and R&D capabilities for a long time of not less than 10% of sales revenue. In 2006, Huawei’s R&D investment reached more than 6 billion yuan, which is far higher than the average R&D intensity of 0.76% of China’s large and medium-sized industrial enterprises in 2005. In addition to direct R&D investment in core technologies, Huawei insists that 10% of its R&D investment is spent on pre-research, that is,

15

Quoted from Huawei’s official website data disclosure, http://www.huawei.com/cn/about-hua wei/research-development.

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continuous research and tracking of new technologies, new fields, and cutting-edge science and technology. 2. Technical Elements of Core Competence: R&D and Process Construction of Technical Capabilities Huawei promotes process-based enterprise management, which is internally referred to as “process.” To say that a person does not understand “process” is equivalent to saying that he does not understand management, does not understand business, is not competent; any business activities have a clear structured process to guide, such as product planning, product development, supply chain and other business activities. Product R&D projects are the best field for Huawei process. In order to manage product R&D activities, Huawei has established a structured product development process to manage project work with LPDT (internally known as development representatives, project management and performance appraisal rights). In Huawei, a product development process is usually divided into six stages: concept, planning, development, validation, release, and life cycle management. In order to get a general overview of product development, we first established a pocket card for the product development process. Pocket card is a product development overview, giving a full picture of product development. In addition, a phase flowchart was produced, describing the meaning of the activity for each activity in the flowchart, and a template for the document was created for the project document. According to the guidance of IBM consultants, the product development process is compared with the original Huawei product development model. One of the major differences is that the conceptual stage and the planning stage are significantly longer than the original process cycle, and more emphasis is placed on the definition of products at the conceptual stage and the formulation of strategies in various fields. Later, Huawei’s product development team validated several PDT projects and found that the entire product development cycle was shortened. The reason is that prior to the introduction of IPD, product definitions are vague and scheme are not specific to the development and validation phase, and the development and validation phase is longer, but rather the entire project development cycle is longer. Therefore, Huawei’s product R&D project is based on the product development process. LPDT leads the project team members to implement product development. In order to ensure the efficient operation of the technology development process system, Huawei has set up technology planning, technology development, research and management processes for CBB (common building block). The technology planning process is based on market demand and other information to compile the road signs of technology development. It plans the trend of technology in the next 2– 3 years. The R&D team conducts technology research and development ahead of product development according to road signs guidelines to reduce the technical risks of product development projects. The technical pre-development process is the basis for the implementation of the project by the team. As shown in Fig. 6.27, it is divided into four stages, namely the conceptual phase, the planning phase, the development phase, and the acceptance phase. Business decision-making and technical evaluation points are pre-defined in the process, where business decisions are evaluated from an

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Opponent

User feedback and demand collection during use to obtain positioning for next-generation products

Oneself Demand

Concept

Plan SE

SE+MDE Trend

Market

Development Acceptance PE

TDT technology development

Transfer product TE TR 5

Client Product

Fig. 6.27 Huawei Technology Pre-research Process

investment perspective and technical assessment is focused on technology risks. Business decision evaluation points include conceptual, planning and acceptance decisions. Technical review points include needs review, overall scheme review, outline design review, functional prototype review, performance prototype review. Due to the high technical risk of the project, the pre-development process may have multiple planning stages. It is a spiral approach to development only after the adoption of the last project. The technology development process is the basis for the technical development team to implement the project, and is divided into four phases: conceptual, planning, development and transfer. Business decision-making and technical evaluation points are also foreseen in the process. The technical development process and the technical pre-development process are clearly different from the production system, the main test is whether DFX can pass the validation, so as to ensure that there is no problem in mass production, the final delivery result is a mature technology module; prototype prototypes (or laboratory prototypes) may be delivered by the technical pre-study prototypes, generally not verified by the production system. Based on the basis of technology planning, technology development, research and CBB management processes, Huawei finally built an IPD process system for product R&D and technological capability enhancement at the group level, as shown in Fig. 6.28. It is an important source for Huawei’s global advantages in technological innovation today. In the past few years, Huawei has gradually established a world-class R&D management system, forming a world-class R&D capability, optimizing the overall operation of the company and achieving significant results. IPD consists of three modules: Market Management, Process Reorganization and Product Reorganization. It can be further divided into eight sub-modules: Customer Needs Analysis, Portfolio Analysis, Measurement Indicators, Cross-sectoral Team, Structured Process, Project and Pipeline Management, Asynchronous Development, and Shared Basic Module. It determines responsibilities, rights, and role design by

6.4 The Case of Huawei Market management process Combined analysis Market segmentation Understanding the market

Past strategy Market information Client feedback Competitor information Technology trend Current product portfolio

325

Life cycle

Verification

Release

Development

Y N

Plan

Product line business plan Product portfolio Product line label Task book? Concept

The mission of market management is to determine what products the company develops for the market, and the IPD process

Develop Manage business business plans and assess strategies performance and plans IPD process

Fig. 6.28 Huawei IPD Flow Framework

process, gradually diluting the authority of functional organizations. IPD has unparalleled advantages in reducing time-to-market, reducing product development costs, improving product stability and competitiveness. It can be said that IPD provides advantages in terms of quality, cost, manufacturing and serviceability at the beginning of product design. It provides a strong guarantee that Huawei can meet customer needs in a quickly and quality way. 3. Non-technical Factors of Core Competence: Organizational Innovation Management and Optimization of Technical Talents Huawei Core Competence Construction involves the optimization of non-technical elements. It mainly reflects the optimization of organizational innovation management and the formation of technical talents. Huawei’s technology innovation organization includes functional departments and business teams, such as company-level pre-research management department and product line pre-research department; the technical business team includes technology management team (TMT), technical management group (TMG), technology research team (TRT), technology development team (technology development-ment team, TDT), etc. The main business of the technical management team includes technology planning, technology R&D, CBB management, etc., as shown in Fig. 6.29. These activities require certain organizational responsibilities, such as ITMT (company-level integrated technology management team), PL-TMT (product line-level technical management team, some of its own research team), TMG (professional technical management team, specialized technical team appointed by the company or product line, such as SDN). Technical management team TMT and product management team (PMT) cooperate with each other: in technology-driven projects, TMT is leading, such as ultra-wideband optical transmission, the market is relatively clear, urgent need for technology beyond. In market-driven innovation projects, PMT is leading,

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such as the popular SDN innovation in 2014, when the market development direction is vague, routes are diverse, the organization is better grasping the market demand, trend. In the work, TMT and PMT are mutually supportive, ensuring the integration of product planning and technical planning. There will also be contradictions between the two, and IPMT ultimately makes investment decisions, and then leads to conclusions. After the technology development is matured, it should be transferred to the established products, integrated into the product development process, complete the market transformation. The technical management system organization and product development management system organization are interlinked and penetrated. The investment appraisal committee is the top management organization of the company to coordinate technical management and product management relationship. In Huawei, due to the large size of the company, technology management is divided into two levels, namely ITMT, C-TT/TRT/PRT (company-level technology development team/technical research team/product research team), and product line level, such as PL-TMT/TMG, PL-TD/TRT/PRT. The main responsibility of the product management system is to carry out product planning and fast product development in response to market demand. Because products need to quickly occupy the market, so for product development, do not let technical problems block product progress, technical problems need to be solved in advance. The product development is based on the shelf principle, the assembly of a mature technical module, the development of the production process, quickly pushing to the market. Technology Research is established in the Technology Management Group to solve these technical problems in advance. Its main purpose is to develop mature technology modules. The responsibilities of the TMS business teams are shown in Table 6.6. Fig. 6.29 Basic Structure of Huawei’s Technology Management System

Business and product stratification

Huawei Technology Management System

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Table 6.6 Summary of responsibilities of each business team in Huawei Technology Management System Key business Summary of duties team ITMT/TMT

• Develop a technology development strategy and key technology signage plan for the next 2 to 3 years according to the company’s investment appraisal committee’s product strategy and direction • Conducting analysis of technological trends and competition analysis, as well as research, planning and analysis of new technologies • Formulate business hierarchy strategy and plan to manage asynchronous development across business levels • Managing significant technical cooperation with other partner companies • In line with PMT’s product signage planning, ensuring the integration of technical signage planning and product signage planning • Guarantee the transition of technology R&D to products • Focus on the development trend of industry technical standards, by leading, participating and tracking customer standards, industry standards, national standards, international standards, etc., to ensure that technical planning and standard setting processes are synchronized

TMG

• Develop platform, technical module, device signage planning and basic information, and provide users with PDT • Technical support for technology and platform TDT and user PDT to ensure the sharing and use of platforms, technical modules and devices • Track industry standards development and IP, develop interfaces and standards

TRT/PRT/ TDT

Under the leadership of the project manager, complete the research and development goals granted by the project task letter to ensure the success of the project

In addition to organizational innovation management, Huawei attaches great importance to the development of innovative talents. The optimization of human resources are also important for the continuous consolidation of Huawei’s core competencies and the maintenance and enhancement of its competitive advantage. At the beginning of the development, Huawei introduced several key technical talents through reuse and reward incentives, who played an important role in the development of new products. However, the sustainable development of an enterprise cannot rely on just a few people, and must cultivate a large number of outstanding talents through system construction. First of all, Huawei attaches great importance to the development of talents, and considers talent as the most important resource for the enterprise. The company clearly stated that “the pursuit of value added in human capital takes precedence over the value added of financial capital”. Second, motivate each employee through a competitive pay distribution system. It has adopted a more flexible domestic income distribution policy in terms of salary, with senior technical personnel aligning with international averages, and has developed options and options policies that relate individual competence contributions to the overall business situation of the enterprise. Once again, we attach great importance to staff training and have designed a series of courses for each type of job. Employees in all branches around the world are trained according to the training plan and pass

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the prescribed exam. Huawei has established employee qualification standards for management, professional, technical and marketing systems, and each employee has a dual career and promotion path. When the number and number of managers needed to be trained is determined, Huawei launched the Managers Resource Pool program to incorporate managers with potential for upgrading into the resource pool. Finally, through the appraisal system, market pressure is quickly transmitted to every department, process and job of the enterprise, and ultimately to every employee. In job performance evaluation, whether it is new product development, sales services or internal resource sharing management, user satisfaction must be the premise and final criterion. This market pressure can be a motivation to motivate employees to move upwards and continuously.

6.4.3 Construction and Development of Huawei’s Innovation Ecosystem 1. Internationalization of Technology Innovation and Global Innovation Ecosystem The internationalization of Huawei’s innovation began in 2001. Since the beginning of the twenty-first century, the competitive pattern of the world communications market has changed. On the one hand, the contraction of the international market has directly affected the expansion of the international market of Chinese enterprises. On the other hand, international telecommunications equipment giants have stepped up their offensive in the Chinese market in the face of demand contraction abroad, creating great competitive pressure for domestic enterprises such as Huawei. In 2001, investment began to shrink due to the splitting of domestic operators. ZTE, the largest competitor in China, used XiaolingTong and CDMA to force Huawei. Huawei faced a major dilemma in the history of enterprise development. Internationalization of innovation, establishment of an international innovation ecosystem, and development of products and technologies in the global market is an inevitable choice for Huawei to improve and maintain its competitive edge. As a result, Huawei embarked on the road of innovation globalization, relying on the core competence of the company, connecting global innovation ecosystem partners in key technologies and business areas, and gradually building relationships with key partners in the global innovation ecosystem. In 2001, Huawei signed tens of millions of dollars of CTMS equipment contract with the Russian national telecommunications department, opening a chapter in the construction of Huawei’s global innovation ecosystem, and opening the door to the 110% growth of Huawei’s global market every year since 1999. In 2001, Huawei launched Quidway Engine 80 core Gigabit switching router and Quidway S full range of smart Ethernet switches, becoming the first domestic enterprise to obtain the CMM level 4 international certification. In 2002, Huawei launched the Quidway Net Engine 40 series of universal switching routers, Quidway Net Engine 50 million core routers, and Quidway S 85 million core multi-layer switches. With more than

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10,000 high-end routers and 270,000 Quidway Net Engine routers and Ethernet switches, Huawei is one of the world’s leading end-to-end network equipment and solution providers. The technology and product iteration and innovation output in 2001 and 2002 provided important technical support and capability for Huawei’s global innovation strategy and ecosystem building. In 2003, Huawei deployed 100 million C & C08 ports around the world, setting an industry record. In the same year, Huawei and 3COM established a joint venture to produce enterprise data network equipment. Both partners passed DNV (Det Norske Veritas) IS014001 certification. In December of the same year, Huawei further expanded its global ecosystem by providing a nationwide UMTS service to Etisalat, strengthening Etisalat’s position as a technology leader and helping it become the first operator in the Middle East and Arab countries to introduce third-generation networks. In the same year, Huawei and 3COM established a joint venture to produce enterprise data network equipment. Both partners passed DNV (Det Norske Veritas) IS014001 certification. In December of the same year, Huawei further expanded its global ecosystem by providing a nationwide UMTS service to Etisalat, strengthening Etisalat’s position as a technology leader and helping it become the first operator in the Middle East and Arab countries to introduce third-generation networks. In 2004, Huawei established a joint venture with Siemens to develop TD-SCDMA mobile communication technology for the Chinese market, and won a contract for China Telecom’s national backbone network optimization. The contract aims to optimize China Telecom’s 163 backbone networks in Guangdong Province. According to the contract, Huawei’s high-end router NE5000 gained 100% market share in the TSR procurement contract and successfully entered two supernodes of the national backbone network. At the same time, Huawei’s Gbit switching router NE90 won 75% market share in the project. Huawei also signed contracts with China Telecom to build more than 12 million ADSL lines, further consolidating Huawei’s position as the largest strategic partner of China Telecom. As a result, Huawei received two awards from Frost & Sullivan, “Asia Pacific Most Promising Enterprise 2004” and “Broadband Equipment Supplier 2004” to further expand its global ecosystem and consolidate its business advantages in the Asia–Pacific region. In the same year, Huawei also received a three-year $360 million loan from 29 banks to implement the company’s global development plan, and awarded a contract to provide UMTS network equipment to Telfort. In 2005, Huawei signed a global procurement framework agreement with Vodafone, officially becoming the preferred communications equipment supplier for Vodafone’s global supply chain. Telefonica chose Huawei as its strategic partner for business innovation in the 3G and broadband sectors, while working together to expand the Latin American market. Huawei was the third podium of the Frost & Sullivan Asia Pacific Technology Awards and received three awards in 2005: Wireless Device Supplier of the Year, NGN Equipment Supplier of the Year and Optical Network Supplier of the Year in the Asia Pacific Region. Huawei also signed an agreement with Marconi, UK, under which the two companies sell some of their products to each other. Marconi will only resell Huawei’s telecommunications-grade data communication products to telecom operators under the brand of Marconi, while Huawei will re-sell Marconi microwave devices, including next-generation microwave devices

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and related network services in its wireless network projects. Huawei has also won a national CDMA2000 3G network for CAT in Thailand, valued at US $187 million. In the same year, Huawei also became the preferred 21CN network provider of British Telecom’s 21 CN network, providing multi-service network access components and transmission equipment for BT 21 CN network, and was licensed to manufacture and sell mobile phones in China. At ITU Hong Kong in 2006, Huawei launched an allIP network-based FMC solution with more than 100 million mobile soft switching users. As a leader in the global mobile softswitch market, Huawei is the number one mobile soft switch shipments in the world. Vodafone chose Huawei to build its Spanish CDMA/HSDPA wireless access network. Motorola and Huawei UMTS Joint R&D Center was established in Shanghai to provide more powerful and comprehensive UMTS product solutions and high-speed packet access solutions (HSPA) to customers around the world; emoBile chose Huawei to deploy Japan’s first IP-based HSDPA wireless access network, while US mobile operator Leap chose Huawei to build a 3G network that will cover key areas such as California, Idaho and Nevada. By the end of 2008, Huawei joined 91 international standards organizations such as ITU, 3GPP, 3GPP2, ETSI, IETF, OMA and IEEE, and held more than 100 positions in these standards organizations. Huawei actively participated in international standard setting and submitted more than 4,100 manuscripts in 2008. Huawei has submitted more than 1,300 proposals in the fields of fiber optic transmission, access networks, next-generation networks, IP QoS and security, and has put forward more than 2,800 proposals in core networks, business applications and wireless access. 2. Internationalization of Technology Innovation and the Deepening Development of Global Innovation Ecosystem The global financial crisis that erupted in 2008 provided favorable external conditions for the internationalization of Huawei’s technology innovation and the further development of the global innovation ecosystem. Against the backdrop of the global economic recession, the growth of the giants in the international communications industry is severely constrained. Huawei’s advantages in key technologies, core capabilities, and capital accumulation have become the backbone of the global communications industry. Faced with the global market malaise and the financial crisis, Huawei has pushed forward the internationalization of technological innovation and the further development of the global innovation ecosystem. The first is to establish a global R&D system.After the financial crisis, Huawei actively promoted the global innovation ecosystem and deepened the company’s global strategy. At present, Huawei’s marketing and service network is spread around the world. Our products and solutions have been applied to 28 top 50 carriers, serving more than 1 billion users worldwide, providing fast and high-quality services to customers. The basis for Huawei’s product development and service delivery is the global R&D system established by Huawei. At present, Huawei has established research institutes in India, the United States, Sweden and Russia, as well as in Beijing, Shanghai and Nanjing. Huawei has more than 61,000 employees, 48% of whom are engaged in R&D and cooperate with leading companies around the world and establish joint labs. Huawei’s research institutes at home and abroad can be

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jointly designed through networks, effectively utilizing R&D resources and greatly improving the efficiency of product development. At present, Huawei has set up a global R&D system consisting of two major R&D businesses, both domestic and overseas, as shown in Fig. 6.30. The domestic section includes eight branches of Huawei Chengdu Research Institute, Huawei Wuhan Research Institute, Huawei Xi’an Research Institute, Huawei Beijing Institute of Numerical Science and Technology, Huawei Nanjing Research Institute, Huawei Shanghai Wireless Research Institute, Huawei Hangzhou Institute and Huawei Suzhou Research Institute; at the international level, Huawei mainly conducts the layout of its branch offices in global sectors and regions. Huawei has established six branches of Huawei North America, Huawei Europe, Southern Africa, Central and East Asia, Huawei Middle East and North Africa, and Huawei Asia Pacific. This has resulted in the integration of its domestic and international R&D resources. Second, the synergy of global innovation ecological partners.With the internationalization of Huawei’s technology innovation and the development of the global innovation ecosystem, Huawei further promotes collaboration between its innovative ecosystem partners, both domestically and internationally, in order to improve the company’s ability to innovate in the course of technology interaction and learning. In China, Huawei and Peking University were the first to develop cooperation in the field of radio and research on CDMA technology. Based on this, Huawei is positioned in the research field of enterprise technology, and actively promotes industrialacademic cooperation and innovation with well-known domestic universities such as Peking University, Tsinghua University, Zhejiang University and Shanghai Jiao Tong University. At the same time, Huawei provides about RMB 10 million per year in R&D funds, issuing bids to fixed-point colleges and universities through competitive bidding. These projects are generally small, and are mainly suitable Huawei's European subsidiary Huawei Southern Africa Branch

Huawei North America Branch Huawei Chengdu Research Institute

Huawei Southern Africa Branch

Huawei Wuhan Research Institute Huawei Xi'an Research Institute

Huawei China (Overseas) Huawei Central Europe East Asia Branch

Huawei China Huawei Beijing Datacom Research Institute

Huawei Middle East and North Africa Branch

Huawei Nanjing Research Institute

Huawei Asia Pacific Branch

Huawei Shanghai Wireless Research Institute

Huawei Suzhou Research Institute Huawei Hangzhou Research Institute

Fig. 6.30 Huawei Global R&D Ecosystem

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for some smaller R&D projects in Huawei’s technology development. In addition, Huawei cooperates with national key laboratories from time to time to use their resources to cooperate with industry-university research. In terms of funding, this type of cooperation is generally concentrated on medium-sized commissioned R&D projects. Huawei grants about RMB 300,000 a year for three consecutive years to the outstanding teams found through short-term cooperation. The main objective is to provide long-term and stable technical support for basic R&D. Internationally, Huawei focuses on major international companies with strong technology capabilities, forging strategic alliances with them to jointly innovate technology. Huawei has established a joint laboratory with world-class enterprises such as Texas Instruments, Motorola, Intel, Lucent, ALTERA, SUN, Microsoft, NEC, etc. In the field of technology, Huawei established a joint laboratory with Panasonic and NEC to develop 3G mobile phones., promote competition among global ecosystem partners, and join industry to drive industrial value chains. Through the deep development of innovation ecosystem around the world, Huawei has achieved the unorderly development of the company’s global globalization from the pre-financial crisis to the normalization and scale-up orderly development today, and has achieved deep integration with partners in the international eco-industry chain. Third, deep ecosystem development in the context of emerging technology trends.In the context of the rapid development of new technologies such as the Internet, communications and smart technologies, the evolution of enterprise innovation and strategy and the construction of an innovation ecosystem also need to be transformed, thus laying the foundation for the future market environment guided by technology and smart cities. Networking, informatization and globalization require enterprises to open up and connect to further strengthen the company’s innovation ecosystem and industrial ecosystem. In this context, Huawei identifies “open, cooperative, and win–win” as the cornerstone of Huawei’s development, and is committed to creating a virtuous ecosystem for a fully connected information society.16 In the course of practical operation, Huawei fully builds the company’s innovation ecosystem from operator, enterprise, consumer, industrial-academic cooperation, upstream and downstream value chain and ICT information and communication technology (ICT) (Table 6.7).

6.4.4 Case Summary As one of the most successful companies in globalization in China and one of the most influential companies in global innovation, Huawei has been engaged in global competition based on continuous core capacity enhancement and innovation ecosystem. Huawei continuously develops and optimizes its core technology and R&D capabilities with more than 10% investment per year, and strengthens its core technology and R&D-related technical capabilities through the process operation of 16

Content quoted from Huawei’s official website.

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Table 6.7 Summary of the Deep Development of Huawei’s Innovation Ecosystem Main business areas

Innovative ecosystem deep development practice

Operator business area

Introduces the concept of “Open Roads to a Better-Connected World” and builds an open innovation ecosystem for ICT operators based on the ICT foundation platform, realizing real-time connectivity between global operators and partners, realizing mutual value and win–win business

Business area

Building a global innovation ecosystem with solutions such as cloud computing, agile networks, safe cities, finance and eLTE. At present, Huawei has connected more than 500 enterprise partners in cloud computing, has implemented the ecosystem of 10,000 enterprise partners in cloud computing. Agile network is fully open and has accumulated more than 200 innovative ecosystem partners to build joint development and collaborative innovation in Agile Campus, Agile Data Center and Agile Logistics

Consumer business area

Focus on leading companies in the automotive and home appliance industries, and carry out collaborative innovation in various emerging technologies such as smart homes, smart watch phones, and smart cars, and export cutting-edge technology and innovative products to global consumers through deep cooperation in innovative ecosystems

Industry, university and research cooperation area

Actively promote industry, academia, government agencies and other ecological cooperation between industry, academia and research, and establish a healthy and innovative ecosystem of cooperation and mutual benefit, mutual benefit and value creation. By the end of 2015, 36 industrial-academic joint innovation centers have been set up, investing $1 billion in five years to launch an enabling program, financing more than 100 Huawei innovation projects, participating in international industry standards and industry alliances to enhance brand value and influence

Upstream and downstream of the value chain

Reduce operating costs through eco-building of upstream and downstream partners, enhance value interaction and create a win–win innovation ecosystem value chain for both upstream and downstream partners

ICT business area

Participate in global ICT industry policy discussions and use its technical advantages to collaborate with governments around the world to promote social progress

Source According to the content of Huawei’s official website, http://www.huawei.com/cn/abouthuawei/openness-collaboration-and-shared-success.

R&D. At the same time, Huawei continues to improve the non-technical elements of its core competencies through organizational management, innovation and technology talent. This is the core source of Huawei’s international competitiveness. Based on its core competencies, Huawei actively carried out the internationalization of technology innovation and the construction of the global innovation ecosystem. In the context of the 2008 global financial crisis, Huawei developed, consolidated and optimized the construction of the enterprise’s global innovation ecosystem. On the basis of establishing a global R&D system, realizing the cooperation of global

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innovation ecological partners and promoting the deep development of ecosystems under the background of emerging technology development trends, the company has created a global competitive advantage and become a benchmark for the globalization of Chinese enterprises.

6.5 The Case of Midea 6.5.1 Introduction and Development of the Midea Group Founded in 1968 in Guangdong, China, Midea Group is a global leader in the production of consumer appliances, HVAC, robotics and industrial automation systems. It offers a wide range of products including air conditioners, refrigerators, washing machines, kitchen appliances and a variety of small appliances. Midea adheres to the principle of “creating value for customers” and is committed to creating a better life. It focuses on continuous technological innovation, including robots, to improve the quality of products and services, making life more comfortable and better. Midea has established a global platform to date, with approximately 200 subsidiaries and 10 strategic business units. Midea has achieved revenues of more than 18.7 billion euros for the fiscal year ended December 31, 2015. It has approximately 110,000 employees worldwide, operates 29 production sites and approximately 260 logistics warehouses. Midea is a private company listed on the Shenzhen Stock Exchange (stock code 000,333), whose diversified shareholding structure shows that nearly 20% of its shares are held by international institutional investors.17 Midea Group is mainly engaged in home appliance manufacturing. Since the establishment of the group in 1968, Midea has experienced several important nodes in the past 50 years of development. For example, in 1980, Midea Group officially entered the home appliance industry; in 1981, the group officially registered the US trademark; in 1993, Midea Electric was listed; in 2000, the US revenue exceeded 10 billion yuan, and the revenue in 2010 exceeded 100 billion yuan; in 2013, Midea Group’s overall listing, and now the US’s global operations, etc. As shown in Fig. 6.31. Currently, Midea Group is a global leader in the field of home appliances and air conditioning, with annual revenue of $22 billion in 2015, ranked first in the global home appliance industry and first in the overseas market of Chinese appliances, as shown in Fig. 6.32. Its market covers more than 200 countries and regions in the world. It is the 481st Fortune 500 companies in 2016 and is the world’s leading credit rating for products and services.18 17

The official website of Midea: http://www.midea.com/cn/about_midea/Group_profile/index_pc. shtml. 18 Midea’s products and services have a global credit rating of A-/A3/A, and the corresponding rating is S&P/Moody’s/Fitch.

6.5 The Case of Midea

1968, to start business with RMB 5000

335

Entered home appliances in 1980

the year 2016 TOSHIBA KUKA Anchuan Clivet

2013 Midea Group listing as a whole

Registered trademark of the United States in 1981

100 billion in 2010

In 1993, American appliances were listed

10 billion in 2000

Fig. 6.31 Midea Group Development History. Source Midea Group Outreach Report PPT

China's home appliance companies in the overseas market revenue first

Haier

2015 overseas revenue / billion US dollars

Midea

Haier

L G

Gree

Electrolux

Samsung

Whirlpool

Matsushita

Midea

2015 revenue / billion US dollars

Gree

Global home appliance business revenue first

Fig. 6.32 Midea revenue rankings. Source Midea company reports PPT materials

6.5.2 The Core Competence Foundation of Midea Group’s Innovation Ecosystem 1. Technical elements of core competence: technology investment and R&D system Our core competencies are based on the Midea Group’s long-term focus on core technology, technology input and technology positioning. Based on years of continuous R&D investment and technical capabilities, it has built an efficient R&D system, thus laying a solid foundation for building core competencies of the Group. Midea’s core technology focuses on fluid technology, inverter technology, mute technology, industrial design, and won the second prize of national science and technology progress through the project “Key technology research and industrialization of room air conditioner energy saving”. On the basis of core technology, the Midea conducts research and development of common technologies around materials and coatings, heat transfer technology, EMC technology and mold technology. At the same time, it is the first home appliance enterprise to engage in artificial intelligence and sensor technology. The overall layout of its technology is shown in Fig. 6.33. In particular, in

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the past five years, the Midea Group has made continuous investment in technology, five years for core technology, common basic technology, future technology investment nearly 20 billion-yuan, 2015 science and technology investment accounted for 3.8%, total investment of 5.3 billion yuan, the total amount of science and technology investment ranked 7th among the national enterprises, and the first place in the home appliance industry enterprises. At the same time, the Midea Group vigorously strengthens the investment of science and technology personnel, accounting for 27% in 2011, with the number of doctoral technicians reaching 20. After continuous investment in technological innovation, the company accounted for 55% of science and technology personnel in 2016, 500 doctoral technicians and 300 senior experts in the industry. In the field of patent applications, Midea Group has filed a total of 32,000 patents in the past five years, ranking first in the world in the field of household appliances in 2015. Based on innovation and continuous investment at the technical level, Midea was awarded the first “2011 National Technology Innovation Demonstration Enterprise” by the Ministry of Industry and Information Technology and the Ministry of Finance. By investing heavily in core technology, common basic technology, and future technology, Midea Group has realized core competencies that drive product upgrading and future development. Based on the technical layout and continuous investment in technology, Midea Group has significantly improved its R&D capabilities in the past five years. As a result, the Group has created a four-level R&D system (Fig. 6.34) to build the world’s top R&D capabilities. Based on the core criteria of high-quality competitive product production, we establish a four-level R&D system from pre-research to product development, and lay down cutting-edge technology to strengthen core competencies and core competitiveness to further support the Group’s future development.

Fig. 6.33 Introduction to the US core technology and related layout. Source Midea Group reports PPT materials

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Core competitiveness More than 5 years

Central Academy of Sciences

Research on cuttingedge technology Common technology Basic technology

3-5 years

2-3 years

Personality technology research 1 year

Business Division product development

Development cycle

Fig. 6.34 Midea Group’s four-level research and development system. Source Midea Group reports PPT materials

2. Non-technical elements of core competence: technological innovation management and strategic innovation Based on the technical elements such as core technology and R&D system, Midea has further enhanced the core capabilities of the Group through the strengthening of non-technical elements such as technological innovation management and strategic innovation. The Midea first promotes the strategic transformation and innovation of the Group at a strategic level. On the basis of the long-term strategy of domestic industry giant Haier Group, Geli Electric Appliance, Midea proposed “333 strategy” transformation in 2012, focusing on the core capacity-building of consumers, clear the group’s strategic positioning is: three years or so to do good products, consolidate the foundation, improve the quality of business; about 3 years from the top three home appliances stand out, become the industry leader; 3 years or so have a place in the global home appliance industry, achieve global operation. Based on the positioning of “333 Strategy”, Midea has formed a strategic framework consisting of technology leadership, efficiency-driven, and global operations. Based on the product and industrial development and implementation of quality projects, the company has greatly improved the Group’s manufacturing efficiency, resource utilization efficiency, automation level, inventory, operational optimization capabilities, etc., and globally enhance brand value and brand global competitiveness. At the same time, the Midea strategy focuses on strategic innovation in emerging technologies. Through strategic guidance and resource allocation, Midea invested 5 billion yuan in automation transformation in intelligent manufacturing, introducing and operating 1,000 industrial robots, achieving the Group’s average automation rate of 17%. This technology capability is located in the top 7% of the industry. In addition, Midea actively deployed the robot industry, and established an industrial robot and service robot company jointly with the international robotic leader Yaskawa Group. It bought

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Novelty product Open innovation platform Lean innovation process (user participation, experience, rapid iteration)

Increased competitiveness of existing products

Globalization

M&A New lifestyle, new industry incubation, M&A

market Existing market

New market

Emerging Markets

Fig. 6.35 Innovation map of the Midea. Source Midea Group reports PPT materials

94.55% shares of KUKA, the leading company of German Industry 4.0, through shareholding and holding, and purchased the domestic Anhui Efte. The 17.8% stake in Intelligent Equipment Co., Ltd., thus realizing the resource guidance and strategic support of the Group’s strategy for technical capabilities and core capabilities. Based on this strategic transformation, the performance of Midea in 2015 in terms of operating income, net profit, net cash flow, per capita benefit improved compared to 2011, while the number of employees was streamlined due to the improvement of technical skills and efficiency.19 Based on strategic transformation and strategic innovation, Midea further enhances the Group’s core competencies by optimizing the innovation management model within the Group. Highlights of innovation management model improvements include the application of Meso’s Innovation Map (focus on product competitiveness and market collaborative management strategy development) (Fig. 6.35), and the application of user-oriented agile innovation methods (radical/disruptive innovation that takes advantage of the fuzzy front end’s early user experience and agile development teams–50% reduction in development time, 30% reduction in costs and increased flexibility) (Fig. 6.36).

19

Based on the comparison of the 2015 and 2011 corporate performance data of the US group, the 2015 data is improved compared with the data in 2011: operating income increased by 3%, net profit increased by 110%, self-owned funds increased by 70 billion yuan, and net cash flow increased. 550%, per capita benefit increased by 220%, the number of employees decreased by 53%, net assets increased by 85%, and the market value increased by 300%.

6.5 The Case of Midea

339 market Customer, competitor analysis 1 iteration 2 iteration 3 iteration

Business model generation Generate ideas

Minimal available prototype

Functional model

Functional prototype

market investigation

Final technical design Technical concept

Sketch (visual draft) prototype

Technical investigation technology

Fig. 6.36 Overview of the Midea Agile Innovation Model. Source Midea Group reports PPT materials

6.5.3 Construction and Development of Midea Group Innovation Ecosystem 1. Global Innovation Ecosystem of R&D and Production Based on our core competencies, with the strategic transformation and business development of Midea’s business, Midea takes open innovation ecosystem building as the core direction of strengthening the Group’s competitive advantage. Midea first strategically defined the basic policy of internal and external open collaboration, restructuring the group’s R&D organization into two parts of R&D and cross-division R&D, while externally constructing and developing an innovative ecosystem by suppliers, strategic partners, users, universities, R&D institutions, startups, investment companies, government agencies and competitors, and focusing on the core products and services of the enterprise. Development and production to create a strong, healthy and efficient global innovation ecosystem. Taking R&D as an example, Midea has integrated global R&D resources through internal organization adjustment and external R&D network. Internally, Midea Group has built a group R&D organization for product development, robot industry, smart home, and central research institute. Outside, Midea Group has built R&D system by the domestic R&D network interacting with the international R&D network. Among these, Midea has established R&D centers in nine cities in Shunde, Shanghai, Shenzhen, Zhongshan, Hefei, Wuhu, Wuxi, Chongqing and Suzhou to build domestic R&D innovation system; abroad has established global R&D centers in Louisville, Silicon Valley, Modena, Italy, and Osaka, Japan, to integrate overseas R&D resources, and set up new R&D bases in Munich, Austria, India and Singapore, to further expand

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the global R&D innovation ecosystem. Table 6.8 summarizes the fundamentals of the US global R&D innovation ecosystem. In addition to the global R&D system, Midea Group further builds a global production system based on Group products and services to provide post-R&D production guarantee for innovative activities, and achieve strong competitiveness in product and service innovation. As of 2015, Midea has established 17 production bases in China, including Shunde, Wuhu, Zhongshan, Hefei, Wuhan, Guangzhou, Huai’an, Chongqing, Suzhou, Jingzhou, Wuxi, Handan, Guixi, Changzhou, etc. Established 10 production sites in 9 countries, including Brazil (focus on household air conditioning, commercial air conditioning), Argentina (focus on household air conditioning), Belarus (focus on microwave, multi-stove), Italy (focus on commercial air conditioning), Egypt (focus on household air conditioning, commercial air conditioning), India (focus on household air conditioning), Vietnam (focus on household air conditioning, washing machine, refrigerator, electric cooker, fan, etc. Thailand (focus on washing machine, refrigerator, rice cooker, microwave etc.), Japan (focus rice cooker, fan, induction cooker and other categories), 27 production bases absorb a total of 90,000 domestic employees, 15,000 overseas employees. 2. Construction and development of innovative ecosystem based on industryuniversity-research collaboration In addition to the layout and construction of a global innovation ecosystem based on R&D and production, Midea Group further integrates official and academic resources and strengthens the competitiveness of the Group’s innovation ecosystem through collaborative innovation practice. At present, the Group has set up a total of 95 collaborative innovation institutions, including 32 universities, 44 technology companies, 8 government agencies and 11 other organizations. The innovative ecosystem of cooperation between industry and academic research is mainly carried out by means of joint laboratory and joint research and development. Table 6.9 summarizes the practice. At the same time, the United States is working with South China University of Technology, Guangdong University of Technology and Sun Yat-sen Table 6.8 Summary of the basic situation of the US global R&D innovation ecosystem Inside and outside the organization

Ecosystem practice

Basic description

Midea Group internal

Group R&D organization established

Including the business unit’s first research and product development, robot industry, smart home, Central Academy of Sciences four modules

Midea Group external

Establishment of domestic R&D center

Including Shanghai base, Shunde base, Shenzhen base, Zhongshan base, Hefei base, Wuhu base, Wuxi base, Chongqing base and Suzhou base nine domestic R&D base

Establishment Established Louis, Silicon Valley, Modena, Osaka and preparation Construction of bases in Munich, Austria, India and of foreign R&D Singapore centers

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University. Based on the joint laboratory and joint research and development of industry-university ecosystem partners, Midea’s 16 universities and 19 industry senior professors, held regular technical strategy forums for the Midea, and held many creative competitions, aiming at deepening cooperation with external high-end technical resources, laying global talent networks, building top technology teams, and perfecting the innovation ecosystem of beauty, improve the performance and competitiveness of the innovation ecosystem of the Midea, integrate global innovation resources, realize the competitive advantage of the global management of Midea Group. 3. Construction and Development of Innovation Ecosystem Based on “Midea innovation Platform” In addition to R&D and Eco-Global Innovation Ecosystem construction, and Collaborative Innovation Ecosystem exploration and development, Midea Group has set up the “Midea Innovation Platform” at the Group level to further bring together innovative ecosystem partners and external resources to realize value interaction and heterogeneous resource integration among innovative ecosystem members, thus realizing innovation spillover and value creation. Today, Midea Innovation Platform has become an entrepreneurial incubator platform for the global public. The group has set up a $1 billion venture capital and $1 billion start-up capital to nurture new industries and realize an integrated business model of online acceleration and offline Table 6.9 Innovative Ecosystem Construction Practice Based on Collaboration between Industry and Science of Midea Name Description

Collaborative organization

Joint Laboratory of Innovative Ecosystem

Midea, Center for Technological Innovation, Tsinghua University

Joint Open Innovation Laboratory

Midea, College of Management, Zhejiang University

Entrepreneurship Incubation Base

SKY ECK Midea, SKY ECK

Entrepreneurship Incubation Base

Plug And Play Midea, Plug And Play

Joint Lab for Intelligent Sensing

Midea, Institute of Electronics, Chinese Academy of Sciences

Joint Laboratory of Intelligent Measurement and Control Technology

Midea, School of Materials Science and Engineering, Huazhong University of Science and Technology

Joint Technology R&D Center

MIT ILP Midea, MIT ILP

Joint Technology R&D Center

ILLINIOS Midea ILLINIO

Joint Laboratory of Intelligent Molding and Mold Technology

Midea, Huazhong University of Science and Technology

Future Life Innovation Joint Lab

Midea, Jiangnan University

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support. Based on the framework of the “Midea Innovation Platform”, Mei Group invested RMB 3 billion to further establish a global innovation center. The Global Innovation Center is located in a world-class R&D center with cutting-edge research, applied research and product development. It covers an area of 400 acres (1-acre × 666.67 square meters), with an area of 260,000 square meters, can accommodate 10,000 people and complete hardware facilities. At present, the Global Innovation Center has completed the presence and gathering of organizations such as Central Research Institute, Smart Home Research Institute, Robotics Industry Company, Big Data Company, E-Commerce Company, Logistics Company, and R&D Agency of the Midea Business Department. As a result, Midea Global Innovation Ecosystem Platform, and combined with the offline global innovation center hardware environment conditions, realize the effective promotion of Midea global innovation ecosystem platform operating model. Based on the operation of the “Midea Innovation Platform” innovation ecosystem model, Midea Group has completed the incubation and successful operation of innovative projects, as summarized in Table 6.10.

6.5.4 Case Summary As a leading company in China and a global home appliance industry leader, Midea continues to improve its core competencies through continuous investment in science and technology, R&D capacity-building, innovation strategy transformation and innovation management model. Based on the continuous development of core capabilities, Midea further builds the global innovation ecosystem of R&D and production, explores innovation ecosystem building based on collaboration between industry and academic research, and creates a “Midea innovation platform” to realize the convergence of partners and resources in the innovation ecosystem, value interaction and innovation spillover, thus realizing Midea’s innovative ecosystem building based on core competencies. It lays the foundation for the Group to participate in global competition and achieve a competitive advantage in the global home appliance market.

6.5 The Case of Midea

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Table 6.10 Summary of the operational effects of the “Midea innovation platform” innovation Ecosystem Innovation project project name category

Running Performance

Listing incubation M2 water purifier project

Total investment of RMB 6.25 million, market time October 2015, sales of $32 million

Grapes’ looking for cars

Total investment of RMB 3 million, market time November 2015, sales of RMB 80 million, has become an independent company operating

Wash home

Total investment of RMB 3 million, market time January 2016, sales of RMB32 million

Clear feather fan

Total investment of RMB 3 million, market time April 2016, sales of RMB 5.35 million

AH Rice Cooker

Total investment of RMB 7 million, market time November 2016, sales of RMB 4 million

Mini washing machine Total investment of 10 million-yuan, market time November 2016, sales of 4.4 million yuan Internal Crowdfunding Projects

M-SHE Women’s and Infants’ Health Auxiliary Care Equipment

Crowdfunding target of 500,000-yuan, actual funding of 655,000-yuan, completion rate of 131%, establishing unique product features and core technologies as well as rapid response Midea innovation platform operation team

Typical innovation case

Handsome pot

Inspired by the wooden barrel rice to develop the wooden liner, the camphor wood liner was successfully developed; inspired by the Korean stone pot bibimbap, the rice stone liner was successfully developed. Through open and innovative resource pooling, “Handsome pot” has achieved a multi-purpose, intelligent control, cloud recipe, Chinese bowl design, noise reduction, and a lot of technical innovations, becoming the industry’s leading products

IQ intelligence

Anti-traditional hemispheric shell design, rational and sensual design fusion, simplicity and personality; achieve far field voice control (including 5 m long-distance accurate voice instruction, operational status query, Mandarin recognition), body cold and heat detection (including automatic detection of body temperature, active regulation of appropriate state), user habit self-learning (memory user setting, statistical user habits, learning appropriate state of air conditioning, etc.)

Source Summing up and collating information based on the collection of Midea

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