Managing knowledge for radical product innovation development in China
Make a radical impact on China product markets
Companies like Apple, Intel, and Yingli Solar are producing products that radically shape the nature of product markets. But what strategies should managers apply if they want to raise or leverage the firm’s capabilities to develop leading innovative products?
A valuable lesson in knowledge management
When Apple started to think about Smartphone technology, they had a belief that cell phones were going to become the most important portable device for accessing information. With this in mind, Apple began to place more focus on developing their iTunes synchronization software for their iPods. They correctly believed that great synchronization software was the key in enabling a cell phone to access greater information. When the time came to develop their Smartphone, Apple’s initial strategy was to partner with Motorola. With time, Apple found the partnership limiting and shifted the project back in-house to arrive at a better product in their iconic iPhone. It appears that Apple learned a valuable lesson in knowledge management – how to leverage its broad knowledge base to develop radical product innovations. Moving forward, Apple continues to set the pace in mobile technologies.
China, the new frontier for radical product development
In 2006 the China Central Government set a target for technological progress to drive more than 60% of economic growth by 2020. This need for technological progress was further heightened by the recent marked slowdown of consumption in the West, together with increases in domestic wages – China knows it can no longer rely on exports of manufactured products to sustain its growth. With the current 12th Five Year Plan on National Intellectual Property Development, and the 12th Five Year Plan for Patent Examination, the Government has placed a firmer focus on increasing protection of property rights. This has further increased confidence in R&D development in China, particularly for foreign-invested firms.
To get closer to expanding consumer markets, multinationals from the West continue to locate key R&D activities in China. The current number of R&D centres in China is approximately 1,600, and about 1,300 of these are foreign owned. According to Professor Kevin Zheng Zhou, a product innovation strategy expert from HKU’s Faculty of Economics and Business, “the pressure foreign firms bring to the China market is forcing local firms to be more proactive in their efforts to pursue radical technology innovations”. To satisfy the growing sophistication of consumers in China, and global markets, Chinese firms need to continue to raise their capabilities for developing radical product innovations.
It’s not how much you spend on innovation that counts
Although Chinese companies tend to be spending more on R&D, firms from the West are still spending more. Large companies like China National Petroleum spent $2.291 billion or less than 1-2 percent of its sales on R&D. ZTE Corp, the fifth largest telecom equipment maker spent $1.399 billion, or 10% of its sales. In terms of global R&D spend they ranked 64th and 100th, respectively. But the amount a company spends on R&D may not be the most vital statistic. Apple is currently the most innovative company in the world and spends $3.4 billion or 3% of its revenues on R&D. In global terms, it is ranked as the 43rd largest spender. Because developing radical product innovations is normally an expensive exercise, effective spend on R&D is more important than the absolute or comparative spend of a firm. Raising the firm’s capabilities for developing radical product innovations should also increase the effectiveness of the firm’s R&D spend.
What influences the firm’s capabilities for radical product innovation?
As Professor Zhou points out, “it is the firm’s knowledge base which provides it with leverage in developing radical product innovations”. Firms tend to possess either a broad knowledge base like you might find in Huawei, GE, Apple, and Samsung, or a deep knowledge base, such in companies like Intel in their production of semiconductor chips, Thorlabs and their production of photonic tools and systems, and China’s Yingli Green Energy, known as ‘Yingli Solar’ the largest global producer of photovoltaic modules. But how should firms manage the integration of their internal knowledge and market knowledge to effectively leverage their knowledge base for radical product development?
According to Professor Zhou, there is little known about this question, so he and his colleague Professor Caroline Li from the University of Denver decided to explore it. They propose that the roles of knowledge breadth and depth in the development of radical product innovation critically depend on external and internal knowledge integration systems of the firm. To advance the proposition, they conduct research in two stages, across a total of 422 participants from 245 firms. The firms are located in the three most developed areas in China – the Yangtze River Delta, Beijing District, and Guangdong, where foreign firms make up a large part of the market. Findings from the research provide important insights into how managers can leverage a firm’s knowledge base more effectively for radical product development.
Effectively integrate knowledge into your knowledge base
Professor Zhou and Li’s research finds that firm’s with a broad knowledge base, such as Microsoft, Huawei, Apple, and Samsung, should benefit more from developing their internal knowledge capabilities, rather than trying to develop capabilities to acquire knowledge from the market. Effective knowledge sharing within the firm creates bridges across its functional units and encourages the firm to develop new ways to combine its range of knowledge applications for achieving unique product advances. On the other hand, when firms with a broad knowledge base seek to acquire additional market knowledge it can result in too many ideas and be counterproductive. These factors appear to shed some light on why Apple ended its partnership with Motorola and shifted its Smartphone product development back to its own broad knowledge base.
For firms with a deep knowledge base, such as Intel, Thorlabs, and Yingli Solar, the research of Professors Zhou and Li finds that market knowledge tends to complement deep knowledge and can substitute for broad knowledge development. Here, internal knowledge sharing may only reinforce expertise and routines that already exist in the firm. This can result in resistance within the firm to develop radical innovations, which reside outside the scope of its current deep knowledge base.
Intel provides us with a good example here. The Intel China Research Centre believes that its focus on communications technology and microprocessor technology holds the key to advancement of Intel’s future products. To drive research in these areas Intel China has developed working relationships with R&D centres located in the USA, Russia, and India. Cooperative relationships have also been developed with leading technology companies and universities in China, including the Chinese Academy of Science. Areas of collaboration include compiler technology, audio visual speech recognition systems, and device and circuit research.
Become focussed on radical product development
To improve the fit between the firm’s existing knowledge base and the way it integrates knowledge, Professors Zhou and Li suggest managers should consider two important issues when devising the firm’s strategy for developing radical product innovations:
- Managers should examine the knowledge base of the firm and identify whether the advantages that exist across the nature and content of the firm’s knowledge, reflect a position of depth or breadth in knowledge.
- Managers should then adjust the firm’s knowledge integration strategies and mechanisms, to fit with the firm’s existing knowledge base.
• A firm with a broad knowledge base should consider strengthening its knowledge sharing processes and routines, as this should maximise benefits from the firm’s already accumulated knowledge.
• On the other hand, to maximise benefits from the firm’s already accumulated knowledge in its deep knowledge base it should consider placing greater focus on building and refining internal processes associated with acquiring and integrating intelligence from the market.
The findings from Professor Zhou and Li’s research auger well for firms wishing to raise their capabilities for the development of radical product innovations. They are particularly important to Chinese, and Western firms located in China. Not only is China becoming more conducive for radical product R&D, the number of sophisticated consumers in China continues to grow. As Professor Zhou says “firms focused on developing radical product innovations that meet the needs of China’s expanding sophisticated consumer base should reap attractive rewards”.