At the Core of Innovation
Looking beyond product innovation to semiconductor business model and customer experience innovation strategies
The semiconductor industry has always been at the forefront of pushing science and technology to the edge in its innovation quest for even faster, smaller and more powerful chips. However, today’s chips provide more than enough power, memory and speed to handle most applications. Squeezing more from product and process research & development is exponentially more expensive and as a result, the potential market return for that incremental investment is decreasing.
Is the old formula of investing in R&D to improve product and process technology reaching its limit? If so, how can semiconductor companies look beyond product innovation to other types of innovation in order to differentiate themselves and retain their competitive edge? Explore how semiconductor companies can step out of the "R&D box," characterized by heavy engineering investment and look for more creative forms of innovation to enable growth.
Meet our subject matter experts
Semiconductor Practice Strategy Leader
Principal, Deloitte Consulting LLP
Semiconductor Practice Leader
Partner, Deloitte & Touche LLP
Scott Angel: The semiconductor industry has always been at the forefront of pushing science and technology to the edge in its innovation quest for even faster, smaller and more powerful chips. However, today’s chips provide more than enough power, memory and speed to handle most applications.
Squeezing more from product and process R&D is exponentially more expensive and as a result, the potential market return for that incremental investment is decreasing. How can semiconductor companies look beyond product and process innovation to other types of innovation to differentiate themselves and retain their competitive edge?
Business model innovation
Historically, most semiconductor innovation has centered on the product or process.
Product and process innovation is indeed critical, but the opportunity to innovate in the semiconductor industry extends to the broader business model, the ecosystem and platform of the whole system or application and the nuances of the customer experience you enable.
Leading companies today are taking a hard look at their business model and challenging the configuration of their profit model, network, structure and processes.
Let’s look specifically at profit model innovation and consider new ways to capture revenue. The software industry recently took a new look at pricing strategies, offering an alternative for customers: per use or subscription-based pricing.
In semis, we are seeing signs of this with the royalty-based model from ARM for microprocessors, which is completely changing the profit and competitive dynamics of the processor market for mobile devices. Let’s look at another example. It’s no surprise that semiconductor R&D is complex and expensive; this reality is only compounded as market and product lifecycles shrink and margin pressures increase. But companies don’t have to go at alone. Why not share in the cost and risk of R&D?
Some leading semiconductor companies are setting up joint ventures with device companies in embedded markets like medical or auto. The semis combine their IC expertise with the applications expertise and market access of the systems company to bring integrated solutions to these markets while sharing in the risk of development and the revenue on the system sale.
By innovating through the relationship with their network, cost is reduced, risk is shared and capabilities are combined to create compelling and unique offerings to the market.
There is also tremendous opportunity today for semiconductor companies to reinvent or recombine capabilities of their product-based system to a platform-based system.
On the systems and applications end, imagine semiconductor companies working with ecosystem partners on tuning chip roadmaps and IP to better enable the whole end-user experience and differentiate the combined value proposition of your OEM partner on better visualization, responsiveness, connectivity, form, etc.
This innovative shift from a "Design-in to a box" to a "Design into an application" holds the potential for tremendous value for end markets and consumers; as the frequency of platform refresh is better managed, allowing semiconductor companies to allocate more investment on the derivative products that spin off the platform.
End-user experience innovation
Finally, leading companies should also consider how they can innovate the entire end-user experience, taking into account the services, channel, brand and customer engagement activities.
Imagine a semiconductor advanced graphics and computing company partnering up with a consumer electronics company and a memory or storage company to develop an Ultra High Definition home media hub that can store, stream, project, distribute and capture high definition media throughout the home and provides a gateway to devices to access home media content anywhere/anytime.
As focus on chip performance alone becomes less differentiating — or in some cases irrelevant — innovating and tuning the chip to enhance the customer experience beyond the system may offer opportunities to increase value.
It will be critical to consider how the silicon level can help better enable the things that customer experiences versus just the performance of the device alone.
Scott Angel: Innovation beyond product and process enhancements is already happening in the semiconductor today. Recent news stories have called attention to partnerships between chipmakers and their broader ecosystem partners: from software developers to hardware manufacturers to service providers.
It’s time to step out of the "R&D box," characterized by heavy engineering investment and look for more creative forms of innovation to enable growth.