Planting and harvesting innovation - an analysis of Samsung Electronics

Researchers in various fields, including economics, sociology, and technology management, have been interested in innovation [11]. The characteristics of innovative outcomes have been investigated as a major research agenda [12, 13]. As Damanpour and colleagues [14] suggested, the introduction of novel ideas or technologies is the core of innovation. According to Van de Ven [15], innovation can be described as “the development and implementation of new ideas by people who over time engage in transactions with others within an institutional order ([15], p590).” Several definitions of innovation have focused on how to apply creativity to business operations and processes [15, 16]. These studies imply that the main focus of innovation research has been on whether the firm creates new tangible or intangible values.

However, innovation has shown to lead to varied results. The meta-analysis by Rosenbusch et al. [17] reported that different contexts explain heterogeneous outcomes resulting from innovation. Even if firms implement similar innovation projects, the result can be different due to environmental factors. In addition, innovation sometimes improves the value of marketing skills rather than creating new technical capabilities [18, 19]. What these results imply is that characteristics of innovative activities are complex. Since a single concept cannot explain the nature and outcome of innovation, researchers need to consider diverse classifications to explain the phenomena of innovation. Given the importance of cash flow in business, a greater focus is required on the influence of innovation on the survival and prosperity of the firm. Even when firms obtain breakthrough technologies, they may not survive when they fail to create new products/services and resulting cash flow as discussed by Jang [8] and Jang and Grandzol [9]. Furthermore, the large amount of investment needed for innovative activities requires firms to prioritize and manage their projects based on the commercial potential. Thus, there is a need to search for a new framework that can provide better explanations on innovation with respect to this issue. The most existing classifications of innovation are not based on the timing of financial outcomes of innovative activities.

One of the typologies regarding this topic is the categorization of radical and incremental innovation based on the sharpness of change in innovative practices [20]. A more drastic transformation can be expected from radical innovation projects while a relatively slight newness can be added to existing technologies during the incremental innovation process. Since radical innovation can pursue both drastic breakthrough and immediate commercialization, there exists the disparity between the distinction of radical and incremental innovation, the main focus of this paper. Space shuttle can be considered as an example of radical innovation as the realization of reusable spacecraft but it is generally considered as a product for immediate use rather than a long-term growth momentum. Such discrepancy leads researchers to develop a new categorization of innovation based on the expected timing of financial outcome.

The Code-Division Multiple Access (CDMA) wireless technology is an interesting case for this point. The CDMA technology was developed by Qualcomm (www.​qualcomm.​com), but the commercial CDMA phones were first created and produced by Korean manufacturers, including SE and LG. While Qualcomm was interested in developing CDMA as planting innovation, SE and LG focused on commercializing the technology for harvesting that innovation. Qualcomm could benefit from licensing fees in the long term with the success of commercial products based on CDMA. In contrast, the short-term cash flow was derived by SE and LG as they sold more CDMA phones to individual consumers.

From this perspective, innovation can be categorized based on its relatedness to the firm’s performance in the short or long term [8, 9]. While certain types of innovative activities may result in an increase of the firm resources engaged in the current competition, others can create value that has long-term potential. This approach modifies the definition of innovations by Gumusluoglu and Ilsev [21] as described in Jang [8] and Jang and Grandzol [9]. First, harvesting innovation can be described as the development of a new resource that can help launch new products/services in the short term. New products, such as Toyota Prius, would be a good example of this type of innovation. Planting innovation refers to the creation of potential firm resources that are based on the state-of-the-art innovation in the expectation of long-term financial benefits. For instance, the invention of hybrid engine technology “plants” potential for future value while the creation of a hybrid car like Prius “harvests” the results of the planting of that innovation.

There are several reasons why planting innovation may not result in new commercial products/services in the short term. First, there may be social constraints that would not allow the use of innovative technology, resulting in no market for new products/services. The commercial use of human stem cell research in the USA has been prohibited by the Food and Drug Administration [22]. Firms initiating planting innovation in this area cannot expect commercial success due to this regulation, except perhaps in other countries. Second, firms may need to wait for the advent of other complementing technologies for the commercialization process. Thus, firms face a high degree of uncertainty about the financial outcome of planting innovation in the long term, especially in the biotech industry. The development of a new technology usually has a high probability of failure. Therefore, planting innovation may not lead to financial gains in the short term even if firms succeed in developing a technology.

The characteristic of planting innovation makes it distinct from invention. Innovation requires entrepreneurial utilization of technological newness by definition, while invention includes scientific and/or technological breakthrough for discovery purposes [23]. Firms invest in planting innovation projects in the expectation of long-term profits. Although the result of planting innovation may directly create cash flows in the form of patent fee, firms usually wait until finding out how to apply the result of planting innovation. In contrast, harvesting innovation pursues short-term profits by launching new products or services. In the 1970s, the Palo Alto Research Center (PARC) at Xerox initiated the development of innovative technologies such as Ethernet (or LAN technology) and copper wire-based Ethernet communication [24]. Due to the lack of commercial intention of Xerox both short and long term, these developments can be classified as examples of invention rather than planting innovation.

Given the heterogeneous characteristics of planting and harvesting innovation, ambidexterity can be important in balancing such innovative activities. Studies on exploitative and explorative innovations have examined this issue [6, 7, 25]. Since pioneering efforts for new processes or technology involve much risk, firms need to optimize the return of their investment in both types of innovation. One possible approach is to utilize external capabilities through M&A, alliances, or industry-academia collaborations through open innovation. Such arrangements would allow firms to share the risk of innovation with other participants [1].

In addition, convergence has played a major role in explaining value added activities in modern firms [1, 26]. Globalization has encouraged the convergence revolution which allows value creation from the synergy of diverse disciplines, industries including IT, biotechnology, and nanotechnology [26]. The co-innovation platform helps converge diverse types of innovations for value creation [1]. Multinationals participating in co-innovation are expected to collaborate with stakeholders, including suppliers, customers, partners, and outsiders. Therefore, outside stakeholders can be active partners who co-create shared goals.

Overall, the classification of innovation can contribute to research by providing clearer guidelines related to the timing of financial outcome of innovation. While planting innovation can result in potential resources for long-term value creation, harvesting innovation is intended to generate continuous cash flows to those engaged in the current market. Following the case of exploitative and explorative innovation, researchers in this field should also consider ambidexterity of the organization. By doing so, firms under resource constraints can be prepared for an optimal portfolio of innovation projects, resulting in better organizational performance in the long term.

SE has been a major global player in electronics and related industries for over three decades. Hoovers (www.​hoovers.​com), a leading corporate information provider on large businesses, describes the overall state of this firm as the new “Electronics Samson.” In year 2015, it reported $171 billion revenue and $16 billion net profit. Its major products include digital electronics, semiconductors, and DVD players. Financial Times ranked Samsung Electronics as 19th in their 2015 FT Global 500 (www.​ft.​com/​ft500). It is beyond doubt that this firm has been successful in creating value for its customers.

The webpage of Samsung Electronics (www.​samsung.​com) and Samsung C&T (www.​samsungcnt.​co.​kr) describes the history of Samsung Group and Electronics as follows. Samsung group was founded in 1938 as a small retail firm in Daegu, Korea. The founding chairman, Lee Byung-Chull, established Samsung-Sanyo Electronics to diversify the business in 1969. As the name implies, the firm collaborated with Japan’s electronics giant Sanyo. It began production of black-and-white TV sets for the first time in 1970, as an outsource manufacturer. After changing its name to Samsung Electronics, the firm began to produce color TV sets, video recorders, microwaves, and personal computers. It has rapidly developed as a global firm since it entered the semiconductor industry in the early 1980s. Since South Korea has recently been accepted as a developed economy [27], it can be said that SE began as an emerging market firm.

Given the fact that SE was founded only about five decades ago, the current performance and growth are astonishing. Despite the current status, the firm used to be considered as a fast follower [28]. SE had focused on producing existing products with better quality at lower prices than other global firms. It is an interesting research topic to examine how and why SE has evolved into a global giant in the electronics industry.

To provide an explanation on this issue, we investigated how SE has implemented innovation to achieve strategic objectives. In 2001, President of Booz Allen and Hamilton Korea stated that Korean firms need to pursue breakthrough innovations to adapt to new market environments [29]. In other words, SE as well as other major Korean manufacturers began to pursue innovation rather than continue to follow market leaders to survive in the dynamic global marketplace.

SE has engaged in various innovation activities to gain global competitive advantage. By doing so, the firm has been able to create value and benefit from new markets with expectations of stable cash inflows. For instance, SE developed new products like Rambus DRAM and Nand flash memory rather than increasing the accumulation rate of semiconductors [28]. Since these new products reflect the needs of customers, including PC or smartphone manufacturers, the innovation brought a large amount of profit in the short term. Given the astonishing results that SE has accomplished, its process of harvesting innovation has drawn much attention.

SE has continued implementing innovative activities steadily. The Value Innovation Program (VIP) Centre, setup in 1998, has played a key role in developing innovative new products at SE [28, 30, 31]. This Centre has shown to nurture creativity and broaden the ideas of R&D staff. As the chief researcher at SE stated, the introduction of value innovation methods has contributed to the creation of many new ideas [28]. Through this system, all participants were expected to overcome the trap of past success syndrome, leading to what is possible.

Blue Ocean Strategy (BOS) [32] has been the backbone of the harvesting innovation process at SE [30]. SE invited W. Kim, the main author of BOS, to train its executives. Senior executives have encouraged the dissemination of value innovation at SE based on the BOS approach [33]. SE strives to create value which its customers never even expected through value innovation for new products. SE’s value innovation includes value management and value creation [33]. While the former focuses on cost reduction and efficiency improvement, the latter aims to generate added value. Therefore, the firm searches for creative ideas rather than implementing traditional continuous improvement type programs.

SE has found practical tools to implement harvesting innovation based on BOS [31]. First, the VIP Centre has utilized the strategy canvas, a framework of implementing BOS [32, 34]. In the Centre, managerial decisions on important projects have been made based on the value curve of each unit against competitors, resulting in new products like 40-inch LCD TV. In addition, the “7 Tools Method” practiced in Japan, which enables firms to empirically recognize value factors of their customers, was introduced [35]. For instance, a survey of 226 Japanese employees triggered the production of a laptop that works well even in a bad wireless environment. These types of techniques have helped SE create new products successfully by reflecting innate needs and requirements of individual and business customers.

It has been reported that all of the creative ideas from the VIP Centre have been reflected in the design and development of new products of SE [36]. As a result, innovativeness of the firm’s new products has been globally recognized as the numerous Innovation Awards of the Consumer Electronics Association (CEA) attest (see Table 1). These achievements prove that the innovative results of SE have been widely recognized by professionals in the field as well as ordinary customers. SE has succeeded in developing new products through harvesting innovation activities.

SE has also focused on the creation of innovative ideas which may not realize any meaningful revenue in the short term. The major results of planting innovation are original technologies which can result in competitive advantage and lead to future business success. The CEO of SE stressed the importance of “technology preparation management,” pursuing core technologies in order to respond to the convergence across technologies and products [37]. This statement exhibits the strong will of top management of SE to implement the planting innovation strategy.

The Samsung Advanced Institute of Technology (SAIT) has played a critical role in developing original technologies. The website (www.​site.​samsung.​com) describes the research efforts currently in place. The Future IT and Convergence domain seeks technologies across real 3D processing, communication theory and network, multicore processing, data intelligence, and medical imaging. The New Materials and Nanotechnology domain aims at developing flexible electronics, solid state lighting, film ceramic crystal composite materials, micro-system integration, oxide materials and devices, spintronics, and nanostructure and materials research. The Energy and Environment domain focuses on energy storage, energy conversion, and environment fields. The Bio and Health domain explores gene analysis and point of care testing (POCT). Indeed, SE has encouraged researchers to create a broad range of intellectual capital for the purpose of leading future technologies.

Furthermore, it seems likely that SE seeks Chesbrough’s [2, 38] open innovation to improve efficiency and effectiveness of planting innovation. By doing so, the firm can create innovative results with less burden in time and resources. The CEO mentioned that open innovation needs to be encouraged to shorten the technology life cycle and to enable convergence in the electronics industry [37]. Thus, SE senior managers have aggressively focused on the utilization of external ideas and capabilities [39].

M&A has been a major instrument to acquire external intellectual capital. SE has acquired several firms, including SanDisk, Amica (a Polish electronics firm) in 2009, and Transchip (a non-memory semiconductor manufacturer in Israel) in 2008 [40]. SE informed the board of directors of SanDisk about its intention of collaborative innovation orientation and human resource retention in SanDisk [41]. Such M&A activities have enabled SE to obtain proven and complimentary intellectual capital and dynamic capabilities, including R&D employees.

SE has also managed a broader range of intellectual capital without much investment by sharing their proprietary technologies with partners. For example, SE and IBM, two top US patent firms, established a cross-licensing agreement which allows the participants to utilize each other’s patents for innovation in 2011 [42]. These firms can share their patents without additional investment, resulting in a more stable basis for innovative activities. This type of contract enables SE to implement planting innovation with finite capabilities. Executives of SE and IBM also announced that the objective of cross-licensing lies in sharing intellectual capital in the expectation of continuous innovative outputs. In sum, SE has implemented planting innovation through SAIT internally and has utilized external capabilities through M&A and licensing for significant financial gains in the long run. SAIT has implemented several major research projects independently as well.

Since SE is implementing planting and harvesting innovation simultaneously, one major task is balancing both types of innovative activities. Otherwise, the firm may suffer from lack of financial cash flows or future leadership in the industry. Despite their brand image, major manufacturers of wristwatch had to overcome the loss of sales volume in the 1970s due to the revolutionary quarts movement technology [43]. Although US electronic giants initiated the transistor technology, Japanese manufacturers like Sony harvested the lion’s share of its benefits with their transistor radios [44].

The significance of inter-organizational cooperation in attaining competitive advantage cannot be ignored [45]. Thus, any organization, however large or global it may be, cannot be competitive for long without collaboration with other world-class partners. From this perspective, the success or failure of firms today lies in managing the relationships with other value chain partners and stakeholders [4].

Beyond the conventional exploration and open innovation focusing on the use of external resources, SE has been searching for the best way to simultaneously implement planting and harvesting innovation through co-innovation with stakeholders [1] (see Fig. 1). The main focus of the VIP Centre has been on how to encourage collaboration among internal departments. Resulting convergence across departments has enabled the firm to recognize the diverse viewpoints other than the opinions of core engineers. The VIP Centre director stated that those firms interested in value innovation need to adopt the cross-functional team (CFC) concept with a separate space to promote inter-departmental collaboration for value innovation [34]. This process is expected to encourage formal and informal sharing of ideas, opinions, and viewpoints since participants have more opportunities to communicate with many people. For instance, the CFC team consisting of marketers, designers, and engineers developed a new slim style laptop which caught the fancy of Japanese consumers [35]. Furthermore, the members of the Centre frequently collaborate with external partners [35].

SAIT has played a significant role in connecting SE with external entities (http://​www.​sait.​samsung.​co.​kr), such as universities, through the Global Research Outreach (GRO) program and other collaborators via the Collaborative Open Research Expert (CORE) program. These efforts have allowed the firm to share the risks inherent in planting innovation. Thus, the firm has been able to reduce the uncertainty involved in innovative practices and maximize its value with finite organizational resources.

Another example of collaboration lies in its value-chain management beyond the use of external capabilities. An association of Samsung’s collaborating vendors, Hyup-Sung-Hoe, has played a key role in co-innovation processes [46]. SE and collaborating vendors have participated in innovation activities, including sectional committee meetings. It is evident that SE’s innovation activities cover not only its own value chain but also that of its partners. Given the fact that current business activities must include vendors, the improvement of innovation capabilities of the entire value chain is essential for gaining competitive advantage. SE also considers the creation of new ventures with excellent technologies as another outcome of its open innovation strategy [47]. The firm manages its entire value chain to compete successfully, as opposed to conducting business with partners for short-term monetary rewards. Figure 1 presents SE’s value chain convergence activities.

SE has participated in the various industry-academia collaboration projects. This partnership has enabled SE to interact with partners to utilize their tangible and intangible resources. Particularly, research universities can provide professional human resources, research expertise, and infrastructure. In 2012, SE established the Centre for Intelligent Computing (CIC) with Seoul National University [48]. While the former supports the facilities and programs, the latter provides research ideas and its faculty resource. Such projects allow SE to benefit from the results of collaborative innovation while sharing the burden of investment. Furthermore, individual participants would likely to share ideas and opinions due to their “relationships” even after the official project is completed, beyond organizational boundaries. SE has also established the Samsung Talent Program (STP) with 14 Korean universities [48]. This program is intended to nurture and develop R&D employees to fit its needs.

The use of a co-innovation mechanism has played a key role in managing planting and harvesting innovation with limited organizational resources. SE has established networks with the various innovation partners, including diverse internal departments, academia, technicians, customers, and suppliers to collaborate and co-create for shared goals. In addition to external resources, the closely interconnected relationships among participants are expected to nurture collective intelligence. Overall, co-innovation allows SE to manage both types of innovation, harvesting and planting, while coping with its fast expanding global presence.

The innovation investment of Samsung Electronics has shown tremendous financial return as can be seen in Fig. 2. The financial information from Daum (www.​daum.​net), a major portal site in Korea, exhibits that SE’s sales volume has dramatically increased since the early 2000s. As SE has paid more attention to harvesting innovation, its sales volume surged from 2001 to 2004. This implies that the firm continued its growth by actively pursuing innovative activities which created much financial gain in the short term.

The revenue of the firm diminished drastically in 2007 with the global financial crisis. This “earning shock” was due to the decrease of demands for LCDs and semiconductors [49]. The global economy was in recession for several years afterward. For example, in 2012, the Federal Reserve Bank announced that the net asset of median family in the USA decreased by 38.8% from December 2007 to June 2009 [50]. Given that the consumption of middle-class families in the USA has been the locomotive of global economy for decades, the effect of the macro-economic crisis would be challenging for many global firms.

SE executives began to search solutions for the creation of original technologies, while continuing its innovation harvesting efforts. Despite the global financial crisis, SE has continued its growth [50]. In 2017, the revenue was approximately $224 billion [51]. SE has steadily expanded its business after it introduced harvesting and planting innovation despite the hostile macro-economic environment and recent ownership succession.