1. R&D Systems at IBM: Lessons from Flat-Panel Display Commercialization
James McGroddy
Consultant and former Senior Vice President of Research, IBM
Knowledge for Development Seminar
Center for International Development
Kennedy School of Government, Harvard University
11 December 2003

2. Outline of Talk
Comments on Innovation Systems in general, Innovation-supporting Knowledge
The IBM Innovation System focus on the front-end “How do you figure out what to do ?” the management system some generalizable principles
Results: Some extra-base hits, focus on flat panel displays
Results: Some ground - outs and strikeouts
Some lessons-learned, some principles

3. Innovation Systems
Complex, tangled, multiply connected, retrograde …..
Path to success has many stages, many risks, lots of fog
Kinds of relevant Knowledge: Indigenous - technical, subject matter Exogenous - future market insight, pathfinding skills, etc.
Very different for different segments, even at a detailed level agriculture, healthcare (pharma vs IT ), telecom/IT, the internet
Generalizing either Theory or Pragmatics a tough challenge although some principles and lessons-learned can be extracted

4. Innovation of What vs. Innovation of How
Many systems can be parsed into Muscle and the Nervous System
Exponential progress in IT, telecom have dramatically changed the performance and cost of the nervous system
Much innovation is the result of applying upgraded nervous systems to old muscle, displacing atoms with bits

5. IBM R&D, focus 1990’s No major change since then, “good” results
R, the front-end of D, and more
A true Central Research ~$600m/yr, ~3000 people, 8 labs worldwide - program about 50% self-determined % joint with company partners ( helps the & )
Charged with Innovation across all segments

7. Evolution of IBM Research
through the ‘70’s
invention and technology transfer
+ Joint Programs
the ‘80’s
+ direct work with customers
the ‘90’s
+the white space

8. The Value Chain Customer Solutions Solutions Application Frameworks
Horizontal Applications
Platforms .. DB, Transaction, etc
Operating Systems
Hardware Systems
Processors, Switches, Routers
IC’s,Storage, Lasers, Displays
Silicon, Magnetics
Electrons, Atoms, Mathematics
Solutions
Products
Technologies
JC McGroddy

9. The Value Chain … How Far Can We See ?
Customer Solutions
Application Frameworks
Horizontal Applications
Platforms .. DB, Transaction, etc
Operating Systems
Hardware Systems
Processors, Switches, Routers
IC’s, Storage, Lasers, Displays
Silicon, Magnetics
Electrons, Atoms, Mathematics
Solutions yrs
Products yrs
Technologies yrs
> 50 yrs
JC McGroddy

10. } } Growth of the IT Industry Poker Chess 2X new stuff more old stuff
revenue 2X }
Poker
new stuff
more old stuff } X
old stuff
Chess 5
year

11. IBM Business Evolution (remember that this chart is from 1994 and needs to be “scored”)
Chess
Poker

13. Planning / Execution / Evaluation - Annual Cycle
The Technology / Business Outlook yr view - process led by research, inputs from the business, customers, other external sources technology, exploitation, impact on multiple sectors - shared and debated internally and externally - backdrop for strategies
Develop strategy focus - start, stop, grow, shrink
Prepare proposed plan, too large by ~ 10%, rank projects - lots of involvement of partners
Internal reviews to the top of the business, closure around budget
Quarterly highlight reviews internally and with partners
Annual structured assessment, lots of partner input, overall score
Capture key lessons learned
Repeat the cycle ……..

14. Contention and Competition
The Customer is not Always Right
Research Investments are made ( partly) to create Alternatives
“The System” will often reject Alternatives - uncertainty, no short term payoff - competition
Alternative Paths may be needed

15. Flat Panel Displays …. The DTI Story
Early ‘80’s, lots of candidate technologies - plasma, EL, LC in different forms, etc.
Outlook and low-end product strategy focused on centrality of FP displays in 1984
Internal players/products: major CRT-based monitor group ( Raleigh), plasma”gas panel ( Kingston); IBM very vertical, internal
Studies between Research, product group, identified TFT/LCD as likely winner in 84. Issue is how, when to pursue.
Initial proposal in 1985: totally internal R&D, raise the mice in the elephants’ cage - rejected in favor of partnering with a Japanese consumer electronics partner. TFT/LCD at about 2 inches appearing.” Trickle Up” expected to win.
Small team, high level support (also many skeptics) chose Toshiba, negotiated joint R&D deal, very foreign to IBM culture
Within 6 months of beginning negotiations, 10/86, IBM engineers joined the Toshiba team at a new, first-pass, Toshiba pilot line

16. Flat Panel Displays …. The DTI Story cont’d
1987: new pilot line completed at IBM, team moves there
Rapid early successes, 9 inch prototypes, yet major skepticism within IBM - “wrong technology, wrong partner, blowing the schedule …”
1989, despite naysayers, JV mfg company, DTI started - exploited Japan capital environment
The race is on … other vendors such as Sharp, Hosiden, tool industry developing, Japan focused
New technologies begin to appear, esp. Field Emission
Rapid progress leads to product commitment
First IBM Color Laptop announced 3/24/92, ThinkPads followed - IBM products had bigger, brighter displays - Ultimately grew to ~ $7B annual sales
In early-’90’s shortage, IBM, Toshiba, built strong market positions
By 2001, Korea major supplier, TV main focus, DTI sold

17. DTI - IBM Initial Motivation
TFT technology would “ trickle up ”
Consumer Volume Mfg Experience
The “ Japanese Way ”
Cost of Capital

18. DTI - later IBM Motivation
Rapid Pace of Progress
Effectiveness of the Relationship
Commonality of Goals
Cost of Capital

19. Display Technology Inc. - an IBM-Toshiba Joint Venture
products
products
OEM
IBM
Display
Business
Unit
Toshiba
Liquid
Crystal
Division
DTI
- array, cell
- 3 plants
- engineering
IBM DBU
development
Toshiba
development
IBM
Research
Toshiba
Research
Display Technology Inc. - an IBM-Toshiba Joint Venture

20. DTI - Lessons Learned
In a dynamic industry, winning in the “new stuff” is key to success New stuff often based on disruptive technology
Bold approach required for disruptive technologies - poker, not chess separation, protection essential - a separate cage for the mice
Focused partnership with common, not complementary, goals and be a major help
Often, the technology will almost certainly develop in the market, while the winners are determined by management boldness and skill, and a dose of good luck.

21. IBM - Some ground-outs and Strikeouts
Routers etc: NSFnet built with 3 generations of IBM routers. Threat to SNA kept IBM out of IP. An alliance might have helped.
PC processors and OS: Early equity investment in Intel not seen as alliance. Proposed investment in Microsoft rejected in 1986.
WDM and laser groups sold, to Tellabs, JDS Uniphase

22. Inhibitors to Success in “New Stuff”
The new opportunity is small and uncertain
Budgets are fully committed to the current line
Incremental investment in the current line will return more
We don’t want to confuse our customers
The new technology is immature
The new approach competes with our mainstream approach and threatens a major revenue stream

23. Market Sweetspots
All -Optical LAN
Telcos
CIO’s - intrasystem

24. Three Waves of Computing
Power of choice moves to the end-user; ease-of-use is key
Pervasive Personal Use
Business operators buy the technology, impose it on the end-users
Customers and users are the High priests
Customers, users, were the high priests
PC and C/S
Mainframe
Server
1960
1980
2000
2020

25. Increasing Focus Worldwide
Stepping up the pace
New business models
Importance of VC
Increased risk acceptance
Improving the linkage
Joint funding/management
Moving people across
boundaries
R&D in the Marketplace
Setting a better agenda
Balancing the portfolio
Changing the culture
Increasing external focus
Looking toward impacts
Application, Commercialization
Basic, Applied Research
Invention
Reduction to Practice