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Nicholas M Donofrio Executive Vice President of Innovation and Technology IBM

Technology Leader Of The Year -- Interconnecting Innovation

Dec. 21, 2003
For 36 years, Nicholas M. Donofrio has helped IBM Corp. and its customers innovate toward greater value. Now responsible for IBM's technology and manufacturing, he wants to accelerate that process by making a more direct connection between R&D and customer needs.

What's the next big thing? That should be the perfect question for the senior vice president in charge of technology and manufacturing at the world's premier technology corporation. For nearly a century, IBM Corp. has been a leader in putting advanced technology to work.

The expectation for Nicholas M. Donofrio's answer is heightened by the realization that IBM can claim to be the world's most inventive company. The company generated the most U.S. patents in 2002, and that was the 10th consecutive year that IBM led the world, according to the U.S. Patent and Trademark office. In 2002, IBM was awarded 3,288 patents, nearly doubling the output of the second-most-productive company.

So what is "the next big thing?"

Surprise! Donofrio says. "We're convinced that there is no 'next big thing.' There may be 10,000 'next big things.' If I'm right maybe there's a trillion 'next big things.'"

In part, Donofrio's assertions derive from broad responsibilities for innovation at IBM. He leads the strategy for developing and commercializing advanced technology across IBM's global operations. He oversees IBM Research, the Personal and Printing Systems Group, the Integrated Supply Chain and Integrated Product Development teams, the Import Compliance office and IBM's worldwide quality initiatives.

"An additional influence on Donofrio's attitude results from how IBM has transitioned its R&D strategy from a closed, vertically integrated model to one that is open," says Harvard Business School professor Henry Chesbrough, author of Open Innovation (2003, Harvard Business School Press).

As IBM's foremost change agent, Donofrio believes that "those 'next big things' are leading to a new era. There's more opportunity to do things differently than ever before." Instead of focusing on any one big thing, Donofrio prefers to speak in terms of "finding ways of adding value faster -- whether it's speeding the application of technology to upgrade homeland security or enhancing product innovation and cycle time in the auto industry." The mission is to tie technology to business value, says IBM's Linda S. Sanford, senior vice president, Enterprise On Demand Transformation.

To Chesbrough, that's IBM's realization that it is no longer necessary to own the technology to profit from its implementation. "Not only has IBM integrated research with development, its researchers now interact with customers."

Donofrio leads a global community of more than 180,000 technology experts who are rapidly developing and introducing new generations of hardware, software, services and other technologies to help customers in all industries improve the agility, integration and effectiveness of their Web-reliant organizations. IBM labels the concept "e-business On Demand" -- a phrase first uttered by IBM CEO Sam Palmisano in 2002.

Extending R&D's Reach

With R&D, Donofrio's strategy is to make a science of using technology to transform the information technology (IT) marketplace. For instance, with its On Demand Innovation Services (ODIS) operation, IBM Research has set out to change fundamentally the way IBM works in the services industry. ODIS is designed to lead customers to an On Demand business model by analyzing their IT challenges and developing novel methods to transform their business processes. Research consultants work with IBM Global Services' traditional consultants to explore cutting-edge research projects designed to increase customer flexibility and provide unique market advantages.

"IBM's R&D strategy is role-model quality," says Chesbrough. "By integrating R&D further into their business purpose, they're able to better solve the business integration needs of customers without regard as to the source of the technology. With the open innovation strategy IBM can make an objective claim to providing the right solution for its customers." Chesbrough notes, for example, that IBM is a large reseller of equipment from Sun Microsystems.

Donofrio's On Demand challenge is the creation of technologies, products and information technology services that will enable his customers to provide products, services or information on demand to all of their constituencies.

The On Demand technologies are about helping companies develop the flexibility, responsiveness, variable cost base and other capabilities that will help them beat their competition. And what that translates into will be different for each specific industry.

For example, in the pharmaceutical industry, On Demand solutions can help companies compete via time-to-market capabilities. Donofrio also sees On Demand creating a revolution in retailing by streamlining purchasing processes, rationalizing supply-chain management and bringing new efficiencies to distribution centers.

For automakers, On Demand will help integrate and optimize supply-chain management, manufacturing and the design function. Those companies moving toward On Demand share common attributes: increased focus, responsiveness, variability and resilience.

In IBM's vision, a focused auto company develops and sells products that instill customer passion. A responsive auto company continually looks to shorten the product-development cycle while connecting with retailers to identify new opportunities. With a variable cost structure, customers get to share process efficiencies.

A resilient company continually monitors the quality and safety of its products and implements updates and fixes before they become problems. Donofrio believes that enabling organizational dexterity and productivity are going to be keys to IBM's vision of an On Demand future.

The Fruits Of Change

To fulfill his mantra of "finding ways of adding value faster," Donofrio has initiated greater interaction between IBM research scientists and the customers of the company's burgeoning global services business. Once positioned as a maker of computer hardware, the company now obtains 65% of its revenues from software and services.

In October's quarterly financial announcements the company indicated that its services business boosted quarterly revenue 17% to $10.4 billion. More than $15 billion in services were contracted for during the quarter. The emphasis today is to have the technologists fulfill a leadership mission in delivering innovation and competitive advantages to customers worldwide, says Donofrio. "The goal here is to strive to put together researchers and IBM's transformational practitioners to innovate ways of solving problems."

The result: On average, IBM researchers spent about 25% of their time with customers compared with 3% to 4% as little as eight years ago. The research scientists supporting ODIS have allocated as much as 50% of their time working with customers to conceive the next generation of On Demand services.

Does that direct line to the market sacrifice IBM's long-term R&D objectives? No, Donofrio is quick to point out. He says that the process of interaction actually has the opposite effect by more easily identifying long-term challenges that need to be attacked. "Our interaction with customers gives us a more refined process for identifying problems that will fulfill our purpose of providing competitive value faster."

First-of-a-kind (FOAK) customer collaborations are also part of Donofrio's innovation strategy. The idea is to establish research partnerships with customers where ready solutions do not exist. Donofrio says the program gives select customers the opportunity to benefit from a virtual research team to evolve promising research projects into market-ready products. Researchers get the benefit of immediate customer feedback and -- depending on their "prenuptial" agreement with the FOAK customer -- the right to use the solution for subsequent customers.

To support R&D/customer collaborations, the company has established Industry Solutions Laboratories (ISLs) in Hawthorne, N.Y., and in Zurich, Switzerland. A typical ISL customer engagement is generally one day in duration and consists of presentations by IBM scientists and industry experts, collaborative dialogues on specific business issues and demonstrations of key strategic technologies.

Donofrio says research collaboration is an effective way of leveraging the competitive value of intellectual capital. In an era of rapidly evolving technology both within and outside IBM, the intellectual capital needed for implementation can be in shorter supply than the monetary capital required. With the modernization of the financial markets (greater access), many economists agree that the only way to stay ahead is to be very, very quick in turning intellectual capital into products and processes. Speed and time-to-market can also help compensate for a product's longevity problems in the marketplace.

Keys To The Future

By establishing IBM R&D's connection with customers, Donofrio's researchers are seamlessly feeding new technology into new business solutions. "Our researchers are equipped to apply new tools to expand the ways a customer's problems can be solved. Our scientists approach these projects from an implementation perspective while the Global Services consultants concentrate on the organizational perspective. It's not enough to deliver something that merely has transformational potential. Customer problems require a delivery mechanism. The idea is to derive functional value faster."

Some early critics of IBM's research collaboration were quick to dismiss the approach as "less basic research and more applied." Donofrio's response is that the change is not so much a shift from basic to applied as a shortening of the time that scientists treat the knowledge in a basic research manner. "With today's competition, good ideas will be quickly recognized and adopted as solutions."

Donofrio's success with introducing innovations is especially notable considering that few established firms -- remember IBM dates back to the early part of the 20th century -- maintain preeminence via new ideas. "They merely get very good at pursuing sustaining innovation -- those innovations that made them successful in the first place," says Michael Raynor, director of Deloitte Research and professor at Canada's Richard Ivey School of Business, London, Ontario. "They're not good at doing other things."

Raynor points out that "the history of business competition in many product markets is one of incumbency being toppled by disruptive innovation," a theme developed by Clayton M. Christensen in The Innovator's Dilemma (1997, Harvard Business School Press). "So the bad news is that if you build a great company that is very good at servicing profitable customers effectively, you're doomed!"

In The Innovator's Solution (2003, Harvard Business School Press), Raynor, now with Christensen as a co-author, warns "that at best only one company in ten is able to sustain profitable growth." The reason: the arrival of disruptive technologies from the likes of Sony, Honda, and Toyota.

The authors note that while many companies have been disruptive once, only a few -- IBM is one example -- have succeeded a second time. The authors' caveat: "No company has been able to build an engine of disruptive growth and keep it running and running."

Will Donofrio's technology initiatives be the basis of their next book extolling such an engine? Consider the following evidence of the innovations that IBM is using to transform both itself and its customers:

  • Autonomic Computing: IBM's vision of how computing systems of the future will be able to configure, tune and repair themselves, as well as anticipate and solve performance problems automatically. The term "autonomic" comes from an analogy to the autonomic central nervous system in the human body, which adjusts to many situations automatically without any external help.
  • Engineering and Technology Services: IBM Engineering and Technology Services target original equipment manufacturers to help create a host of new electronic products from entire systems to subsystems to complex chips and cards. The offerings include consulting on manufacturing processes such as silicon-on-insulator and copper technology, IP management and memory design.
  • Grid Computing: The approach, like the Web, keeps complexity hidden while multiple users enjoy a single, unified experience. It enables the virtualization of distributed computing and data resources such as processing, network bandwidth and storage capacity to create a single system image, granting users and applications seamless access to vast IT capabilities. Just as an Internet user views a unified instance of content via the Web, a grid user essentially sees a single, large virtual computer. Unlike the Web, which mainly enables communication, grid computing enables full collaboration toward common business goals.
  • Pervasive Computing: The concept describes ubiquitous access to information using new communications or network technology. The technology implies computing power freed from the desktop and extended to wireless handheld devices, automobile telematics systems, home appliances and commercial tools of the trade. For example, Textron Fastening Systems, Troy, Mich., a business unit of Textron Inc., recently introduced a line of intelligent fasteners with embedded microprocessors remotely controlled by intelligent tools.
  • WebFountain: The concept is an advanced text analysts technology that collects, analyzes and stores millions of pages of structured and unstructured data weekly. The analysis applied to the data extracts trends, exposes patterns and discovers relationships that can affect business. The sources can include all types of electronic data. The possibilities include news feeds, a full crawl of the Web, industry-specific data sources, licensed feeds and company documents. The result: objective information provides valuable business insights to support timely, proactive business strategies.

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