When
it comes to disruptive technologies, incumbent industry giants are most
often thought to be the ones getting disrupted. So bound up are they in
their existing business models that they find it hard to compete when
new technologies gain market traction. But Xerox Corp., for one, is
trying to protect itself from that scenario. Its method of choice?
R&D collaborations focused on technologies that might not have a
commercial market for more than a decade.
Most companies are aware of future so-called disruptive
technologies, explains Xerox's Hervé J. Gallaire, who says Xerox has
researchers whose sole job is examining what is theoretically possible.
"It's more a matter of not believing that a technology will succeed at
a certain price point or performance level," says Gallaire, who until
his retirement in December was the president of the Xerox Innovation
Group and the company's chief technology officer, overseeing Xerox's $1
billion worldwide R&D efforts. "It's more a lack of appropriate
judgment about the significance of a technology."
The real questions, according to Gallaire, are where to place your
bets, and does your company have the needed competencies to develop a
particular new technology? "That's where a precompetitive consortium
can help," Gallaire says.
Precompetitive consortia -- temporary partnerships between
potentially competing companies -- have been around since 1984, when
the National Cooperative Research Act was passed, allowing companies to
form industry alliances without running afoul of antitrust laws. The
change allowed companies to begin working unfettered on early research,
which could in turn propel an entire industry forward. Hundreds of
consortia have been formed since, and as technology has become more
pervasive and complex, the pace has picked up.
Still, Xerox's approach is unique in the realm of R&D
collaborations because the research emphasizes technologies that are
eight to 15 years away. These kinds of far-off developments with the
potential to shift markets and roil long-established businesses, says
Gallaire, have made precompetitive consortia an intrinsic component of
Xerox's strategy to develop innovative products and services that will
keep the company growing.
Perhaps Xerox, having managed one difficult comeback, doesn't want
to have to attempt another. After a long slide, including a huge loss
of share in the copier business it pioneered, the company began to
regain its footing in early 2002. It did so in part by exiting
businesses and refocusing its efforts on the development, manufacture,
service and financing of document printing equipment and software. The
company says its color printing business and products such as Xerox
DocuColor multifunction devices and iGen3 Digital Production Press have
been key sales drivers of late, helping generate third-quarter 2005
revenue of $3.8 billion.
Xerox separates potential disruptors to its own business into three
categories: those that might replace the company's core copier and
printing business, such as a marking technique that could replace
Xerox's electrostatic copying process; those that could render a
central paradigm obsolete, such as a technology that could enable a
truly paperless office; and those that might undercut Xerox's business
model, such as the ability to service copier equipment remotely. While
Xerox hasn't necessarily identified near-term threats in these areas,
it has active R&D under way in each of them nonetheless.
Most truly innovative technologies do not arise from a single
source, according to Gallaire. They require a variety of skill sets and
knowledge bases, and few companies have such a breadth of expertise.
Even though Xerox has a wide array of research facilities -- stretching
from the famous Palo Alto Research Center Inc. facility in Palo Alto,
Calif., to the Xerox Research Centre Europe in Grenoble, France -- the
company recognizes it can't cover every potentially fruitful area of
research on its own. Hence, precompetitive partnerships focused on
R&D are an excellent way to bring together different core
competencies that may be necessary to develop new technology.
One prime example of such a consortium is a partnership
Xerox set up with Motorola Inc. and Dow Chemical Co. The three
companies created a five-year research project to work on printed
organic electronics, focusing on a way of making circuitry using
flexible plastics rather than silicon (see sidebar). The partnership,
which concluded last October, meant that the three firms could bring
their own expertise in printing and inks (Xerox), chemicals (Dow) and
displays and chips (Motorola) to bear on the problem. Xerox has applied
the lessons learned in that partnership to its work on the so-called
paperless office.
The other partners had their own motives. "We wanted to do this work
to mitigate the risk of product development with printed organics,"
says Motorola's Jim O'Connor. O'Connor heads the early-stage
accelerator program within the Motorola Technology group, and he
believes the partnership met many of the goals it set out to
accomplish. And while all three companies remain mum on exactly what
products they hope to introduce from the consortium, all agree that
reducing the risk of going it alone was an important factor, both in
terms of the financial exposure on the research side and the risk that
some other company might develop the technology first and adversely
affect their business.
There can also be less obvious benefits from such precompetitive
partnerships. At Intel Corp., the company actively seeks out
partnerships with other companies and research facilities. "We have
more than 100 companies we work with on research-related things," says
Manny Vera, technology strategist with Intel's research and development
labs. But not all of those arrangements are aimed at the company's core
business of developing microprocessors. Often, Intel will encourage
what may seem to be tangential technologies, Vera says, even ones that
may help competitors. Examples of such research include Intel's work in
streaming video on the Web, which is now widely used on the Internet,
and a new search technology the company is developing that allows users
to search databases for a particular image using pattern recognition
rather than keywords. "It may help competitors," Vera says, "but you're
giving the world more reasons for buying computers" -- including those
with Intel inside.
Consequently, companies that form these partnerships may well reap
benefits that may not initially appear to enhance their bottom lines.
But this is all part of anticipating disruptive technologies, according
to Xerox's Gallaire.
"So if it's done well," Gallaire says, "it's a form of corporate judo, turning a threat into an opportunity."
Precompetitive consortia don't come formed from a single mold. Each
situation is different. In some cases, the primary goal is to combine
scarce resources. In others, the aim is to tap expertise in ways that
will benefit all parties concerned, often with government assistance.
One example is the Infotonics Technology Center in Rochester, N.Y.,
opened in 2004. The center is intended to be a central lab that can
bring together researchers to collaborate on projects related to
photonics (photonics involves, among other things, the use of light
rather than electricity to speed the delivery of information). The
research facility is a partnership among New York state, the private
sector, the federal government and 20 academic institutions. New York
gave $28 million, and the federal government gave $22 million in
assistance for the center, while Eastman Kodak Co., Corning Inc. and
Xerox will pony up nearly $45 million over the first five years. The
three companies also expect to raise a further $30 million by bringing
additional partners to the table.
Gallaire describes the Infotonics partnership, which was in the
planning stages for three years, as one in which companies get out what
they put in. "The idea was to create an infrastructure that can be
jointly exploited," he explains. "It means contributing staff,
equipment and some funding on each company's part." But it also means
the firms can share very costly research equipment that individually
they probably could not afford.
If a company wants more out of the center, it can initiate more
projects at the center, but "you have to pay for what you use,"
Gallaire says. Of course, there are no guarantees that such research
will pay off, Gallaire warns. So other companies, such as Intel,
support scores of such partnerships with varying degrees of control.
"Intel Research is set up to support lots of labs around the world,"
says Vera. "Some are a research-to-research relationship, others are a
strictly business relationship, still others are more informal."
Sometimes an Intel scientist will simply pick up the phone and contact
a colleague working on a similar problem. In other cases, an Intel
researcher working on a project may read about a complementary project
under way at another company and contact that firm directly. If Intel
sees some common ground, it will start with a letter of intent to
explore the possibilities. Then, the R&D managers of each company
will institute nondisclosure agreements. When the two sides decide some
positive results may be forthcoming, they begin to work out
intellectual property issues.
With so much collaboration, IP protection is critical. Few companies
know that better than Xerox, which has a history of letting valuable
technologies slip away. Famously, a number of groundbreaking inventions
were developed at PARC, established in 1970, including the Ethernet
networking standard and the graphical user interface. When key
researchers left PARC for startup ventures, they often incorporated
these technologies into new products.
Xerox has learned from the missed opportunities of decades
past, Gallaire says. "You set up the rules of the game before you start
anything. We are much more careful now." With the Infotonics center,
for example, "there are very precise rules depending on who
participates and what they contribute," he says. Xerox also has an
internal committee dedicated specifically to examining and approving
all the IP issues in each deal.
Research sponsored by other companies is conducted at PARC, says
Gallaire, and in such deals, precise rules about what IP accrues to
Xerox and what accrues to the sponsor are established in advance.
Depending on the work being performed, in some cases no IP rights may
accrue to Xerox. In others, the company may provide a free license to
any technology developed. Intel also emphasizes that some flexibility
is necessary regarding IP.
According to Vera, in most academic funding situations, for example,
any developed technologies go solely to the companies providing the
funding. However, some university researchers that Intel supports agree
in advance that any technology developed will be licensed freely to any
interested company. "In other arrangements, Intel or the other company
may own the IP, but the other company can license it," says Vera, "so
we won't own the patent, but we'll have a cross-licensing arrangement."
Companies need to look at developments that may affect their
business 15 years out, Gallaire says. As soon as a company identifies
such technologies, he believes, it needs to explore the possibility of
forming relationships. Motorola's O'Connor concurs, adding that many
technologies with the potential to disrupt Motorola's businesses or
products have been on the drawing board for decades, including wireless
mesh networking; ultrawideband, or UWB; DNA computing; and radio
frequency identification, or RFID.
"So, for example, we did some early work with wireless broadband,"
says O'Connor, citing a technology that some believed could supplant
standard cellular phone service. Known internally as Motorola's Canopy
project, that broadband technology is now known as WiMax and is
anticipated to see widespread adoption in the next 12 months. Motorola
is partnering with Sprint Nextel Corp. on technology tests and
equipment trials. O'Connor sees this as an example of technology that
while seeming to disrupt Motorola's core business, could in fact become
one of the company's new core businesses.
Indeed, Xerox's approach may be prescient, as the trend to
ever-larger partnerships between competitors appears to be growing.
Some academics complain there has been a steady drop off in
government-funded research. The Defense Advanced Research Projects
Agency, the central R&D organization for the Department of Defense,
for example, recently revealed that its funding for university computer
science research dropped by 5% between 2003 and 2004. The result, some
analysts say, is that without stepping into the breach themselves,
companies may lack access to innovations that would otherwise boost the
bottom line in the future.
Such thinking was behind a recent University of California
announcement that three fierce competitors, Google Inc., Microsoft
Corp. and Sun Microsystems Inc., will fund a new $7.5 million
laboratory at the university's Berkeley campus. The university said the
facility, dubbed the Reliable, Adaptive, and Distributed Systems
Laboratory, will focus on developing more reliable computer and network
systems. Like some of the arrangements described by Intel, any products
from the lab will be nonproprietary and freely licensed.
Likewise, Xerox plans to continue to form partnerships that may lead
to market-changing technologies. "We'll look for disruptive innovations
that will continue to create new business opportunities in the future,"
says Sophie Vandebroek, Xerox's incoming CTO.
It isn't that all the technologies investigated will produce new
opportunities. And, as Gallaire admits, there's no precise way to
quantify the value of these partnerships. But to forgo them is to risk
ending up on the wrong side of a disruptive change. CD
Now that's disruptive
For more than a decade, scores of companies have tried to perfect a
technology known as printed organic electronics. In theory, it would
enable companies to print circuits and processors as easily as we now
print photos on home printers. Eventually, the technology could produce
the stuff of science fiction: cheap video monitors the size of
billboards, flexible displays and electronic paper that stores printed
material on plastic substrates that can be reused thousands of times.
But progress in the field has proved difficult, requiring expertise
in a variety of areas, including materials science, printing and
circuit design. So Xerox Corp.'s partnership with Dow Chemical Co. and
Motorola Inc. to work on printed organic electronics seemed natural
because the three brought the right core competencies and because the
technology, if perfected, could disrupt each of their businesses.
Initially, Motorola approached the other companies to gauge their
interest, according to Motorola's Jim O'Connor, head of the Early Stage
Accelerator program. After some discussions, the partnership also
generated a grant from National Institute of Standards and Technology.
NIST is a U.S. federal agency within the Department of Commerce whose
mission is to promote U.S. innovation and industrial competitiveness.
One way it does this is by funding high-risk industrial and academic
research. The additional support helped get the Xerox-Motorola-Dow
consortium off the ground.
Once the general terms of the arrangement were worked out, the
five-year plan was to enlist the resources of Xerox's research
facilities, including the Palo Alto Research Center Inc. in California
and the Xerox Research Centre of Canada outside Toronto, where its team
would work on a semiconductive ink. Meanwhile, Dow would bring its work
in materials, specifically the flexible plastic to print on, while
Motorola would contribute its expertise in displays and microprocessors.
The partnership ended last October, with the group announcing it had
produced a liquid material it believes could be printed on flexible
materials to create circuits. And because the technology doesn't
require the clean room conditions that silicon processor manufacturing
demands, Xerox believes the results could lead to a 100 times reduction
in the cost of making processors.
Such results could eventually prove disruptive to not only the
business of making displays and chips, but also to mass media and
wireless communications. But when will we see wall-sized video displays
and electronic papers that you can roll up in your pocket?
Questions remain about mass production, Xerox says, and the
durability of such products still needs testing. "So electronic paper
is not less than five years away," admits Xerox's recently retired
chief technology officer, Hervé J. Gallaire. - John R. Quain
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