Stephen Doel, director, technology and research programs, ARM

How open innovation made ARM a global power

This article describes how a small Cambridge company has used open innovation to become a vital part of the global electronics industry. The author highlights the strategic decisions taken when the company was founded that led it to base its business on open innovation. He discusses how open innovation has taken the company beyond normal supplier relationships to two-way partnerships, in which both sides benefit from insight into the other’s work. The article then explains how individual relationships between ARM and its customers were woven into an ecosystem of customers, suppliers, tools vendors and others, all committed to ARM’s product line. It concludes with a reflection on what it takes to run an open innovation strategy in a globalised economy.

eIQ Action Points – using open innovation to build a market position

Stephen Doel is an experienced program manager with particular expertise in risk management and new product introduction. Recruited by ARM in 2001 from a local start-up, he initially oversaw the complexities of integration and first product releases of a company acquired by ARM. Subsequently he managed delivery of the company's primary software product, before moving into the research group in 2006 to run the various programs delivering next generation technology to the business.

You may not have heard of ARM, yet many of the electronic products in your home are powered by ARM microprocessors. ARM licenses the core processor designs for 25% of all the digital products in the world, and its partners ship 3bn processors based on ARM technology every year – a number that is growing steadily. A business model based on collaboration and open innovation has been fundamental to ARM’s success.

ARM was founded in Cambridge, England, in 1990 by 12 engineers with a novel design for a microprocessor. The design promised to draw less power and cost less to make than rival designs available at the time, making it ideal for the emerging mobile phone market. At the beginning the company made a strategic decision to license its processor designs to semiconductor manufacturers and take a royalty on the chips they sold to their customers, thereby avoiding expensive manufacturing costs and introducing the partnership model upon which ARM’s business is now based.

So how does this partnership model work in the context of open innovation?

Two-way partnerships

ARM collaborates with all the companies and organisations involved in the process of turning an idea into a finished electronic product. Licensing processor designs to semiconductor makers means that ARM has to understand their requirements, and their increasingly sophisticated integration and manufacturing environments, in detail. ARM also has to maintain strong relationships with the semiconductor companies’ customers, so that it can respond to their requirements by introducing the right processor features while still keeping power and cost down.

ARM introduced an innovative two-way partnership model

To build on this approach, ARM introduced an innovative two-way partnership model: a license deal with a partner is combined with a reciprocal relationship to provide ARM with insights into the licensee’s product roadmap and emerging applications. This approach means that ARM can build a deep understanding of how its customers’ industries are evolving, as well as giving its licensees information about the future of ARM product lines.

ARM views its customers as partners. It sees each licence deal as part of a long-term relationship intended to benefit and increase the profitability of both companies. The company has extended this relationship to cover other areas of its partners’ design environments, such as the CAD tools they use, and the operating system vendors and other third parties that provide vital building blocks for their offerings.

This has created a company with an influence that is far beyond that expected for its size

This strategy has created what is termed the ‘ARM ecosystem’: a group of hundreds of OEMs, chip manufacturers, tools suppliers and third parties that is centred on ARM, which pulls them together for mutual benefit and knowledge sharing. This has created a company with an influence in its industry that is far beyond that which would normally be expected for its size.

Barriers to entry

This collaborative culture and openness has also created substantial barriers to entry for our competitors. ARM is now the de facto 32bit microprocessor. It has been used and re-used in so many different market applications that partners face extensive re-investment costs and considerable isolation if they choose other processor designs. Through its partnerships, ARM can also get earlier insight into innovative ideas for new products than competitors who lack an equivalent ecosystem.

This ecosystem also helps ARM to move into new markets, for example netbooks and laptops. As computer and handheld technologies have converged, OEMs are seeing the need to include ARM-based chips in their netbooks/laptops to provide the same ‘always on’ functionality that users have learnt to expect from their mobile phones. ARM and its ecosystem offers these netbook/laptop makers much greater choice, through a selection of chip providers, features and functions, than vertically integrated suppliers that provide everything from the basic chip through to reference designs for end products, operating systems and applications software. Combined with being able to use intellectual property from the mobile phone world, where our business began, this gives netbook/laptop makers an integrated solution for the emerging world of cloud computing, in which applications run on computers within the communications network, and Web 2.0.

Little England?

All this activity and influence has sprung out of ‘Silicon Fen’, an area of wetland in the east of England that also hosts one of the world’s great universities – but not much in the way of manufacturing industry. So how has the company been affected by being headquartered in the UK? Probably the two biggest impacts have been through its listing on the stock exchange, and through the globalisation of the economy.

This focus on the short term has to be balanced by a need to invest for the long term

While a stock-exchange listing brings many obvious benefits, it has taken ARM some time to adjust to the need to communicate with investors, particularly the requirement to publish results every three months. This focus on the short term has to be balanced by a need to invest for the long term, particularly to assure our partners that they can trust us when they have effectively outsourced a vital part of their R&D to ARM. In part to address this need, the company has re-organised itself into four divisions, with a centralised research group that can operate outside the normal business pressures.

ARM has always been global in outlook. None of its biggest licensees are in UK, and few are in Europe. Most are in the USA, with a good number in the Far East. This has meant that ARM had to think and act globally from the start – operating outside national boundaries, both in terms of its choice of partners, its choice of employees and its outlook. The partnership model means the company can respond very quickly to partner needs: employees just need to travel a lot to have the necessary face-to-face meetings.

ARM has been practising open innovation since long before anyone gave the process a name and it became a fashionable part of innovation management. The key to the process is to form partnerships of mutual benefit, based on trust, and then gather an ecosystem around your company that can provide the kind of market insight and power that larger companies might achieve using their manufacturing strengths or key contracts.

Stephen Doel

Director, technology and research programs, ARM
Stephen.Doel@arm.com

eIQ Action Points - using open innovation to build a market position

Open innovation is easier if you build your business around the strategy from the start
Create partnerships that are more than just supplier relationships, but conversations in which you get back more than just revenue and repeat orders
Build relationships with your customers’ customers, so you can anticipate how your customers’ products will need to evolve
Broaden your offering by building relationships with other companies that are vital to your customers’ success
Develop your company-to-company relationships into a web of mutually supportive connections between your partners
Use this ecosystem to reinforce barriers to entry in your key markets
Use this ecosystem to gain insight into evolving markets
Recognise that open innovation requires an open mind

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