Monday, October 3, 2011

Open innovation, asymmetric partnerships and Japan's ICT industry


(This is a modified version of a recent post at cambridgetechnopole.blogspot.com)

Last week I went to a talk given at ITEC in Kyoto by Bob Cole from UC Berkeley on the topic of Japanese software. Two key points relating to Bob Cole's talk were:
  • Japan's ICT and consumer electronics industries were built predominantly on innovative hardware solutions, supported by bespoke software. This hardware focus plays to, and helped build upon, Japanese strengths in designing and manufacturing precision goods (the term often used to describe this is monozukiri - the art of making physical things).
  • The world of ICT has moved to being much more software intensive. The recent activities of HP and IBM provide ample support for that point. Japanese companies have been losing competitiveness, and do not seem able to make the transition to a more software intensive approach (but caution is needed in terms of causality and correlation there).
During the talk, the question was asked of the Japanese technology managers in the room 'In your development activities, do you start with hardware then bring in software, or is it the other way round, or do you do both together?'. The response was ~80% for hardware first, software second. A lively discussion ensued, part of which focused on Japanese management structures where seniority rules. The older employees are more likely to be hardware specialists, and software will larger be the domain of younger - and hence more junior - engineers. As a result, hardware dominates. If this is the situation (and there are many other factors to consider before leaping too quickly to conclusions) then for Japan’s ICT firms to transform themselves, different approaches are needed. And this is where open innovation fits in.

One idea put forward for addressing the issues highlighted above was for Japanese ICT firms to partner with (or buy) software start-ups based outside Japan and use these external organisations to stimulate internal change. Such partnerships are a well documented form of open innovation and seem to offer very clear synergistic benefits to both partners.   However, research shows that getting very large, old, complex firms to partner with small, new, agile start-ups is very challenging.  Add to this the extreme strategic, operational and cultural differences between long established, manufacturing focused Japanese ICT firms and, for example, UK or US-based software start-ups, then the management problems are likely to be amplified.

Partnering for collaboration is one thing; expecting culture change within the larger firm as a result of the partnership is a much bigger issue