INSEAD – GLOBAL STRATEGY ELECTIVE – PROFESSOR S. RANGAN (MAY 2012, 12J MBA) Leveraging Globality at Ericsson Turning local innovation into global technologies Team: Yumi Aizawa, Arnaud Bonnet, Martin Garnes, Prasanth Karumanchi Logo from http://www.logostage.com/logo/ericsson/#.T9II0OIthM (copyright by Ericsson)
Group project delivered for a mini elective on global strategy, especially focused on how global firms can leverage their globality.
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INSEAD – GLOBAL STRATEGY ELECTIVE – PROFESSOR S. RANGAN (MAY 2012, 12J MBA)
Leveraging Globality at Ericsson
Turning local innovation into global technologies
Team: Yumi Aizawa, Arnaud Bonnet, Martin Garnes, Prasanth Karumanchi
Logo from http://www.logostage.com/logo/ericsson/#.T9II0OIth-‐M (copyright by Ericsson)
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Index
Ericsson .................................................................................................................................................. 2
Facilitating innovation by leveraging globality – a three-‐tiered approach ............................................ 5
Decentralized decision-‐making to empower staff to take ownership of ideas ................................. 5
Organizational Culture for utilizing global capabilities ...................................................................... 8
Cross-‐regional Sub-‐networks facilitates information sharing .......................................................... 10
The advantages of global innovation ................................................................................................... 12
Learning from Ericsson: Rolling out its approach to innovation to other industries ........................... 13
We are grateful to INSEAD alumna Carla Belitardo (Ericsson, Brazil) for discussing the innovation process at Ericsson with us.
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“…To build our networked society, our innovations need to be offered more widely than to
operators alone. We are finding new ways to extend our reach. Today, we also address
sectors like utilities, TV & Media…” (Ericsson 2011 Annual Report)
Ericsson Major innovations in communication methods have been key to the progress of society.
The invention of the telegraph in the 1790s was followed by the invention of the telephone
in the 1870s, and the emergence of mobile telecommunication networks in the 1980s.
Almost a century separated each major technological improvement. But over the past 20
years, rapid innovation has revolutionised the way we communicate, and the emergence of
smart phones has meant that network operators have needed to find ways of handling
increasing volumes of data as well as providing new customer-‐focused services to develop
new sources of revenue.
Founded in 1876, Swedish telecom equipment maker Ericsson has been at the forefront of
innovation in this truly global industry: from inventing Bluetooth technology to bringing
mobile Internet to the heart of the Amazon. Ericsson is the world's largest mobile
telecommunications equipment vendor1 with a market share of around 38%.2 According to
the company’s 2011 annual report, its market share in mobile network equipment makes it
twice that of the number two player.3 Ericsson’s technology underpins much of the
hardware that makes cell phone networks actually work4, and the company’s main
customers are network operators. Over the past years, Ericsson has realised that to
Table 2: Summary of financial data for Alcatel-‐Lucent
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Why is Ericsson able to reduce its R&D expenditure while still innovating, and what can
companies in different industries learn from Ericsson and the way it uses its global presence
to innovate and roll out new technologies quickly and cost-‐effectively?
Facilitating innovation by leveraging globality – a three-‐tiered approach Our discussions with Ms. Belitardo and our analyses of multiple case studies on innovation
at Ericsson, suggested that there are three areas that facilitate innovation at Ericsson:
• Decentralised decision making processes
• Organizational Cultures, and
• Cross-‐regional sub-‐networks.
Decentralized decision-‐making to empower staff to take ownership of ideas Ericsson recognised that in a large, global organisation, innovation takes different aspects
(spanning the range of product innovation to business model innovation), and that if the
company is to promote an innovation culture, managing the generation of ideas becomes a
complex task. Hence in 2008, they launched a company-‐wide collaborative idea
management programme that is implemented like a pull based internal idea marketplace –
an open network for the exchange of ideas built around a host of defined innovation needs
– without any central control or steering.11
Ericsson is organised by regions (for example Latin America, North America, Africa, etc..),
and each region reports to the HQ. Each region has responsibility for its P&L accounts, and
the company has deliberately taken steps to empower its regional offices by decentralizing
decision-‐making process. Rather than only focusing on its core business of telecom
various cities around the world which are considering launching similar services. In each of
these projects, new innovation has come as a result of targeting local needs and creating
solutions, which can then be expanded globally to other regions.
Organizational Culture for utilizing global capabilities A decentralised structure needs the correct communication platform for the exchange of
ideas to actually happen. Ericsson has developed an organizational culture for global
collaboration and knowledge transfer, which manifests itself in two ways:
1. When they have identified a market need that needs to be filled, Ericsson employees are
encouraged to first look first inside the company (including both HQ and other regions)
for solutions before looking outside the company to local vendors. The HQ can help
facilitate the search for new innovations within the company, but employees are more
generally encouraged to find the solution by themselves. This approach seems to lead
to a proactive workforce which encourages collaboration within the company, across
different regions. Employees see it naturally to look across the globe to leverage the
corporation’s global capabilities. If the solution exists in a different region/office, a price
will be negotiated with the office or region holding the patent/technology/product.
2. Ericsson employees therefore continuously have to look outside their regions when
developing local solutions. Since employees know that there might be a global demand
(from other regions) for a novel solution they are developing for their local markets,
every solutions is as far as possible made replicable (the core of the concept), with an
add-‐on layer for localisation (“the wrapper”), as shown in figure 2.
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Figure 2: Design framework for innovative products at Ericsson
Many innovations in global firms are not transferrable (i.e. they cannot easily be replicated
in a different region), often because of company politics, or the costs required to re-‐
engineer a product or solution to meet local tastes and demands. At Ericsson, these issues
appear to be addressed by having an open structure of collaboration that is entrepreneurial
in that few of the discussions are centralised (although employees know that the HQ is
available to help if help is required). Local regions can champion their ideas to other regions
and the “buying-‐in” or innovation pull mechanism avoids layers of bureaucracy that may be
observed in firms where decision making is more centralised through HQ.
As shown in figure 2, the innovating group can sell the “core” technology of the product to
the adopter group, and the latter can develop a localized “wrapper” according to its needs
and specifications. The innovator group will continue to innovate within this framework as
long as it is allowed to “sell” the products to other parts of the firm because it not only
generates revenues for the group; it also streamlines the adoption process, decreasing the
costs.
Core: StaYc across regions
Wrapper: customized
across regions
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With a new tool for collaborative idea management that it launched globally in 2008 under
the name IdeaBoxes15, Ericsson moved away from pushing innovation efforts to its regional
offices. The system was designed and implemented as a pull based internal idea
marketplace, transparent and open to all employees. Adoption within the firm is voluntary,
and each innovation manager has the choice of whether to utilize the tool or not. As the
system is open to all employees, ideation goes beyond R&D and this emphasises how
Ericsson recognises that its employees are the most important source of new ideas,
regardless of their job description. As of July 2011, the system had registered over 15,000
ideas while supporting Ericsson in the effort of building a culture of collaboration across
borders and units.
Cross-‐regional Sub-‐networks facilitates information sharing One of the biggest challenges for global firms is information sharing and knowledge
management. Innovation often comes down to simply connecting already existing dots, and
a solution to your problem may well already exist in another region. Solutions developed
elsewhere may also be applied differently in your region, and hence addressing problems
that it was not intentionally developed to solve. However, all of this will never happen
unless information is flowing between regions. And given the amount of information and
innovation in a corporation the size of Ericsson, it is simply not possible for everyone to
know about everything, even with the very successful implementation of IdeaBoxes. So how
can we assure that the relevant information is shared? Ericsson has a global innovation
center working to identify and globally roll out selected innovations. However, one cannot
assure that the innovation center is qualified to decide which innovations have global
potential and which do not. In addition to this, some innovations may not be globally 15 http://www.managementexchange.com/story/everyone-‐innovates-‐everyday-‐collaborative-‐idea-‐management-‐ericsson
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applicable, but could be useful in one or two other countries. One of the measures Ericsson
has implemented to avoid such lost opportunities is to develop sub-‐networks where certain
departments connect globally across regions. We have illustrated this by the example of the
sustainability teams. A cross-‐regional, matrix-‐like network exists between people working
on sustainability projects (see figure 3). Through such sub-‐networks, Ericsson increases the
likelihood that relevant information reaches the different regions, and as such they are able
to connect more of the available “dots” that exist within their company. Specifically, the
Community Power project has been replicated in the Amazon16, and is currently in process
to be replicated in Surinam. The Bus Fleet Management system has drawn attention from
several other regions, and is likely to be rolled out to other locations in the near future. This
has come directly as a result of communication within the cross regional network for
sustainability. If all transfer of knowledge and innovation was to be channelled through
headquarters, it is likely that some of these opportunities would not have been recognized.
informally when they source the technology. Further, when a group adopts a product from
a different region, it is investing in a product that has already been tested and that is mostly
free of bugs, which decreases the risk associated with launch of a new product or service
(σ↓). Hence, from a strategic perspective, the innovation structure at Ericsson is crucial to
creating and capturing value for the firm.
Learning from Ericsson: Rolling out its approach to innovation to other industries Ericsson is able to leverage innovation globally through their unique organisational structure
and its decentralised approach to innovation. The combination of formal and informal
organizational structure, as well as a culture for innovation and collaboration enables the
firm to leverage innovation globally. As a result, Ericsson increased its benefits and number
of customers and decreased costs and risk associated with the innovation.
Now, having seen this theory, what could other industries learn from the ‘Ericsson style
innovation’ and benefit from replicating this theory within their firm? We believe that a firm
in a fast moving industry which is driven by customer demand could benefit from replicating
the ‘Ericsson style innovation’. For example, in the innovation-‐driven high technology and
the consumer products sector, R&D costs are typically high, and there are transaction costs
associated with rolling out technologies fast and “localising” them to specific markets.
Ericsson’s innovation design framework that consists of two layers (“core” and “wrapper”)
can enable such industries to reduce their time to market while enhancing collaboration
between global offices which need to buy in core technologies, by copying the core part and
only changing the wrapper to meet local needs. Such quick roll-‐out of new products may be
critical in maintaining and developing a competitive edge.
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Secondly, this approach can substantially decrease the overall R&D cost and optimise the
Sales/R&D ratio.
Sustainability, profitability and growth are 3 components that are essential to firm’s success
and innovation is an important element for firms to be sustainable. However the common
question that firms face is how to remain innovative? The ‘Ericsson style innovation’ gives
an insight to this question. The Ericsson style enables the firm to be innovative in a low cost
and low risk way as well as capturing growth in new markets efficiently, and spreading novel
solutions through a culture that promotes proactive cross-‐pollination between regions.