Reinventing Big Blue

This week’s issue of Business Week magazine (September 10) has an important story about IBM in the quarterly insert that they call “Inside Innovation.” The provocative title is “Radical innovation: Lessons from IBM’s innovation factory.” In my book Group Genius, I describe how IBM has opened itself up to benefit from the power of innovation networks. I describe IBM’s “innovation jams,” on-line competitions open to anyone, around the globe, who can contribute to a technical solution. This new article adds to the story with quotations from IBM senior executives who were responsible for this sea change.

The main story is how John Kelly, the head of IBM’s semiconductor division, rescued a failing business unit by sharing its technology, and creating an “open ecosystem” with nine other companies. In 2003, the $5 billion that IBM had invested into its chips business wasn’t working out very well; that business had lost $1 billion for each of the previous two years. Chip R&D and plant construction are incredibly expensive; IBM’s recent rehabilitation of an existing plant in New York cost them $4.4 billion. This is a lot of money to put at risk of making a mistake; and one of the strengths of what I call “collaboration webs” is that they are excellent at spotting errors and weaknesses. Anyone who follows the open source software community knows about Eric S. Raymond’s famous statement, “Given enough eyeballs, all bugs are shallow.” Now, IBM’s chip business is turning a profit.

Other IBM innovation networks include a project with Sony to design the graphics processor used in the PlayStation 3, and a collaboration with Freescale, Samsung, and others to design new manufacturing processes for chips used in consumer electronics devices.

Opening up a company is difficult, particularly if it’s a company that has a long history as an innovation powerhouse. Why do we need to go outside? After all, we’re IBM, we’ve hired the world’s best researchers! And it wasn’t easy at IBM; Business Week quotes several executives describing the push-back. I argue that it takes a strong commitment from senior management. And IBM had that: CEO Samuel J. Palmisano is on record saying “We are the most innovative when we collaborate.”

The key is, as usual, in the details. Coordinating diverse corporate cultures takes sustained effort and attention. Intellectual property issues have to be resolved, very clearly, up front. It’s important to have a set of explicit guidelines for how the day-to-day interactions will take place. And once these networks start to bear fruit, they often require organizational restructuring within each participant company.

This is a risky strategy, and when I first started writing Group Genius it still seemed a bit exotic. But when Big Blue’s collaborations make the cover of Business Week, it doesn’t seem so exotic anymore.

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