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Open Innovation at Huawei

Open Innovation at Huawei

 This is a summary of the case study prepared by Professor Jeevan Jaisingh, Kim Yongsuk Kim, Xu Yan and Huang Minyi for the Business School’s Thompson Center for Business Case Studies.

Huawei’s history, performance and structure

Huawei Technologies was founded in 1987 by Ren Zhengfei, originally as a sales agent for telephone switches. Unlike other Chinese companies that formed joint ventures with foreign companies to obtain technological know-how and manufacturing competence, Huawei decided to do its own research and development (R&D) on switch production.

Within about 20 years of its founding, the company had grown to be the world’s leading provider of information and communications technology (ICT) solutions. By 2016, its total revenue was US$75.1billion and it ranked 129th among the 2016 Fortune Global 500 companies. By 2016, Huawei had more than 170,000 employees working in more than 170 countries.

In terms of management structure, Ren Zhengfei, the founder and CEO, jointly led the company with a rotating CEO.

Huawei was organized into three business groups, each serving a different customer segment: Carrier Network Business Group, Enterprise Business Group and Consumer Business Group.  

Corporate philosophy

Huawei’s culture was embedded with a sense of urgency at all levels, partly because of the cut-throat competition in the ICT industry.

“For more than a decade, the thing I have thought about every day is failure. I don’t look at success and have no sense of glory or misplaced pride, what I have is a sense of crisis. Maybe this is the reason why we still survive today. We all have to think together about how we are going to survive, for then we may at least survive a little longer. A time of failure will definitely come, and everybody should get prepared for this. This is my unshakeable belief, which also follows the historical law.”

Ren Zhengfei, CEO of Huawei (2014)

How Huawei values research

Of Huawei’s employees, a total of 45%, or 76,000, were engaged in R&D research.

“Over the past 26 years, we have invested at least 10% of our annual revenues in R&D every year. Just last year, Huawei spent 14% per cent of its annual revenue on R&D. We also allocate 10% of our total R&D investment on future technologies research.”

Ryan Ding, president of Products and Solutions, Huawei (2015)

Huawei Innovation Research Program (HIRP)

“We want to develop HIRP into an open innovation brand of Huawei that is well known amongst industry, research institutes and universities.”

Zhijun Xu, rotating CEO of Huawei

HIRP was established in 2010. In 2014, Huawei launched HIRP’s open innovation platform.

By the end of 2015, Huawei had developed long-term research relationships with a number of top universities and academic teams around the world. At HKUST, the collaboration had led to the setting up of the Huawei-HKUST Innovation Laboratory. By 2015, 24 professors from different departments had participated in 53 research projects and produced more than 90 technical solutions through the Huawei-HKUST Lab.

By the end of 2015, Huawei held over 41,000 patents in the major jurisdictions around the world. Huawei had over 24,000 granted patents in China and for a number of years was consistently China’s No.1 patent owner and applicant.

Project selection

Every year Huawei presented a strategic plan based on its experts’ forecasts of future technological development trends, the aggregated real demand of customers, and the technical bottlenecks encountered in R&D activities. With the exception of those projects which Huawei is firm about their market potential and it  has the technical capabilities to carry forward, all other projects are considered to be open to external partners via the HIRP platform.

Approved research projects based on this plan would be classified as HIRP Flagship or HIRP Open. The HIRP Flagship was an invitation-only call for proposals that targeted world-class, full-time faculty members engaged in leading ICT-related research at top universities and research institutions around the world.

The HIRP Open projects were more forward-looking projects to exploit new research areas; areas that Huawei was unfamiliar with and in which it had yet to develop capabilities.

In an effort to exploit innovative ideas, HIRP had increased its funding allocation to HIRP Open projects. In 2015, HIRP Open listed 100 research topics and received nearly 400 research proposals, about 15% of which were on topics not listed by HIRP Open.

Project management

Depending on the relative levels of expertise of the academic teams and of the relevant Huawei engineers, Huawei would either send personnel to the universities to work with the academics, or simply have regular face-to-face meetings or teleconferences.

Project evaluation

Immediately after the project was completed, the value of the research outcome was carefully considered by the evaluation committee. Huawei’s project manager was responsible for presenting the research results.

Only a very small percentage of the projects failed to meet their preset targets.

Questioning the way forward

“If you are using standardization experts and their parameters to evaluate a project’s value and significance, a lot of fundamental technologies will not be treated as important patents because they cannot be standardized.”                                    

Qian Zhang, Tencent professor of engineering, Department of Computer Science and Engineering HKUST.

As Huawei had transformed from being an industry follower into an industry leader, the company faced the challenge of leading the industry’s technological innovation. Huawei believed that open innovation, particularly driven by industry-university collaboration, was the golden key to facing the challenge.

The key to the success of HIRP was the carefully designed and executed processes of open innovation that started from project initiation to completion and evaluation. However, Edward Lin, head of Huawei’s Technology Cooperation Department, knew that the number of projects that met their preset targets, and were commercialized and used in projects, was very high. Did this mean that HIRP in its current format was not incentivizing Huawei engineers to take on enough risky projects that could reshape the industry?

Lin and his team were keen on improving HIRP but were not so sure what to do. What were the strengths and weaknesses of HIRP, and how could HIPR help Huawei build up new competences? What further changes should they make at Huawei to truly reap the benefits of open innovation?

The case was last updated in July 2016. For a copy of the case, please email to: bmcase@ust.hk.

Professor Xu Yan presents the Huawei’s case at the World Open Innovation Conference held in ESADE Business School of Barcelona

Expert Comments on Huawei’s Innovation Research Program

Professor Henry Chesbrough, UC Berkeley Haas School of Business, ‘Father of Open Innovation Concept’

Huawei is rapidly emerging as a global technology leader in the telecommunications equipment marketplace. The company has grown rapidly, and its products have evolved from early copies of other technologies to world-leading breakthroughs that promise to lead the market in the coming years.

One part of the company’s success lies in the innovative processes that it has developed to create and develop these technologies. HIRP is built upon a careful understanding of open innovation, and the company has thoughtfully applied open innovation to its telecommunications context. We can say that HIRP demonstrates “open innovation with Chinese characteristics”.

The case study carefully documents the ways in which HIRP enlists the support and collaboration of numerous academic faculty, both in China and in many other universities in the West. HIRP examined the innovation policies of many other companies, both in telecom and in other industries such as pharmaceuticals, in developing its own process. They have decided to base their processes on the success of companies like Cisco, which extensively leveraged technology from places like Stanford University. In so doing, they decided not to follow the example of Bell Laboratories, which created wonderful scientific discoveries inside its own extensive laboratories but often struggled to provide timely technologies to its sister business units inside AT&T.

By leveraging HIRP, Huawei, like Cisco, engages extensively with excellent academic researchers. The case study explains the challenges that this approach entails. The best academic researchers have a pre-existing research agenda, and often have all the funding they require to carry out their agenda. Companies like Huawei must attract their interest in projects that Huawei can carry forward, and it is the potential to see one’s research implemented in the real world that serves to motivate strong academic talent to collaborate with Huawei. This is not like managing a vendor, it is much more like a research partnership. And the professors quoted in the case study are clearly impressed by their experience in working with Huawei.

The author of the study from HKUST clearly enjoyed extensive access to the company, and also took the time to interview a number of external professors in researching this case. The result is a study that will be of great value to all who seek to understand the changing processes of innovation, the rise of strong Chinese technology players, and the importance of accessing academic research, and then making it useful.

Dr Lin Haibo, Global Head of Technology Collaboration, Huawei Technologies, and Leader of Huawei Innovation Research Program

Open Innovation is an approach that aims to gain wisdom, connections, and inspiration beyond an organization’s boundaries. The Huawei innovation research program (HIRP) is one of Huawei’s initiatives in funding leading universities and research institutes to meet the common challenges in ICT areas. It is a key approach that supports Huawei’s strategy of building a better connected world using open innovation and collaboration. As an open and flexible innovation mechanism, HIRP has already attracted thousands of research scholars from around the globe, to carry out innovation research in many exciting areas. Being a partner of HIRP gives access to a highly intelligent network, enabling both Huawei and its partners to better leverage their knowledge to create value.

HIRP and its predecessor program have been in place since 1999 and have delivered many successes. HIRP will continue to grow, and to focus on open innovation in the ICT field. Huawei believes that collaboration between industry and academia is not just a luxury but a vital catalyst to spark the innovation that will keep our technologies, and therefore our societies, progressing through a better connected world.