Intel faced challenges developing new photolithography technology and organized an industry consortium called EUV LLC to coordinate research efforts. However, problems emerged as the US government intervened and technical progress stalled. Intel was forced to extend existing technologies and push back EUV development timelines. Effective organization of R&D requires balancing internal and external efforts, exploration and exploitation, and value creation with value capture.

1. MIT OpenCourseWare
http://ocw.mit.edu
15.912 Technology Strategy
Fall 2008
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2. Intel Photolithography and
Effective Organization of R&D
Professor Jason Davis
MIT Sloan School of Management

3. Intel Photolithography Update (1)
• Wilson develops the Consortium option:
– Resolves Free Rider problem with a complicated business model:
“Virtual National Lab” VNL organized:
• EUV LLC company manages research; holds all IP
• Lawrence Livermore + Sandia + Lawrence Berkeley labs run it
– ~150‐170 people working on EUV
• Intel (12‐15p; $50m); Motorola (6‐8p; $10m); AMD (2p;$5m)
– Bought shares in EUV LLC
• Equipment manufacturers (Nikon and Canon) purchased rights of first
refusal with guaranteed margins to convince them to make
photolithography equipment.

4. Intel Photolithography Update (2)
• Problems emerge for EUV LLC:
– Congress steps in to limit foreign companies value capture…EUV
LLC forced to create incentives for domestic companies
– By 2006, technical progress on 45‐nm EUV faces major problems
including power issues.
– Intel pushes EUV back from 2008 (now!) to 2011 on
Roadmaps…extends optical technologies with “computational”
tricks to correct errors that are smaller than wavelength of light.

5. Value Creation: Technology, Markets,
and Organizations
How will we
Create value?
How will we
Capture value?
How will we
Deliver value?

6. The S‐curve Maps Major Transitions
Performance
Ferment
Takeoff
Maturity
Discontinuity
Time

7. Novartis Pharmaceuticals: Organizational design reflects research topic synergies
Structure SituationSummary
Centralizing R&D permits Novartis to focus resources on common, underlying research topics. The Novartis
corporate senior leadership has traditionally been very technologically oriented (PhD/MD) and drives the
company to develop new blockbusters. Novartis acquires product rights from biotech firms to plug gaps in
their offering.
C Technology
D
C
Market and
Strategy
D
C
C
Organizational
Context
Leadership
D
D
• Academia leads fundamental research in understanding disease mechanism
• Industry labs identify therapeutic targets based on basic science of disease mechanism
• Patents of composition provide strong competitive insulation for a single molecule product
• Range of easily exploitable business opportunities is narrowing while the range of radical
new approaches (e.g. genomics) is expanding rapidly
• Pharma industry is driven by blockbuster products anticipated by street visibility through a
10 year pipeline
• Novartis portfolio decision-making bodies include business unit representation
• Need high critical mass of researchers to advance the common scientific platforms supportin
multiple product categories
ƒ Early stage product development teams are highly cross-functional
• Corporate leadership is highly technical and closely involved with the research programs
and development projects.
• Fully centralized
research that supports 7-
10 therapeutic area
businesses
• Scientific platforms
support multiple
therapeutic areas (e.g.
immunology)
Relevance
Oncology Cardiovascular
Novartis Global
R&D
CEO
C
D
• Novartis and other major pharma companies
spend 15-20% of sales on R&D to discover
and develop “blockbuster” products
• Centralized R&D provides critical mass of
specialized expertise and facilities to leverage
science across multiple product categories
• To offset the potential disconnect between
R&D and business, Novartis deploys research
review including senior business,
development and manufacturing
representatives.

8. Summary
Intel: Decentralized R&D structure reflects availability of externally‐available
technology plus a strategic lock on industry standards
Intel’s strategy is distinct among semiconductor makers: Intel exploits externally-led basic research, and
concentrates on adapting it to get products to market quickly. Intel “free rides” on fundamental research from
competitors such as such as Lucent and IBM. They set the rules of the game through their control of
standards and architecture.
Technology • Major technology advancements are acquired from external sources
• Product life cycles are very short
• As current generation technology approaches theoretical performance limits, search intensifies
for radical new approaches
C D• Technology is modular, but Intel has a strategic lock on architectural control
C
Market and
Strategy
D
• Semiconductor industry is highly competitive and mature
• Intel competes on its ability to develop processes to bring products to market faster than
competitors; flexible production lines allow very efficient variations on existing technology
• Relies on industry consortium (Sematech) to advance manufacturing state of the art
• Emphasis on building strong brand equity to project product “premiumness”
C
Organizational
Context
D
• High level of acquisition activity
• Strong ability to exploit both internal and external research
• Places paramount importance on time-to-market issues associated with technology transfer
Leadership • History of strong technological leadership from CEO (from DRAM chips to processors)
Situation
D
• Business-unit
Decentralized R&D
Structure
C
Microcomputer
Research Labs
Microprocessor
Product Group
Intel Architecture
Labs
Intenet Communications
Group
ComponentsResearch
Labs
Technology
Manufacturing Group
Intel Executive
Office
Relevance
• Intel relies on in-sourcing available
technology through an Decentralized
R&D structure.
• Intel is seldom first to invent, but are fast
and efficient adapters
• Technology Council
coordinates research
• Architecture Labs
conduct basic research
to maintain dominance
in setting industry
standards and forecast
• This approach has yielded substantial
C
D
profitability, but leaves them vulnerable to
future competitive technological advances.

9. Current “best practice” attempts to
balance & integrate the two poles:
“Basic”
or “fundamental” Internal or External?
science
EXPLORATION
“Applied”
research
EXPLOITATION

10. Current “best practice” attempts to
balance & integrate the two poles:
"Research”
Spending $ IBM 1985
Intel, 1985 IBM 1995
Intel, 1985
External Internal

11. Pharmaceuticals 1981-1997
Pharmaceutical Firms: Relevant Patents vs Basic Research Publications, 1981-1997
Patents
Publications
Source: Kwanghui Lim: “The Relationship between Research and Innovation in the Semiconductor and
Pharmaceutical Industries: Implications for Theories of Knowledge Spillovers “
No. of published articles in relevant basic journals
3500300025002000150010005000
No.ofrelevantpatents
0
500
1000
1500
2000
2500
Rhone-Poulenc B-M-S
DuPont
Burroughs-Wellcome
Hoffman-LaRoche
Ciba-Geigy
Eli-Lilly
Bayer
Hoechst/MMD
Pharmaceutical firms: Relevant patents vs basic research publications, 1981-1997
Merck
Abbott
Pfizer Warner-Lambert
Image by MIT OpenCourseWare.

12. Semiconductors 1981-1997Patents
Publications
Source: Kwanghui Lim: “The Relationship between Research and Innovation in the Semiconductor and
Pharmaceutical Industries: Implications for Theories of Knowledge Spillovers “
No. of published articles in relevant basic journals
70006000500040003000200010000
No.ofrelevantpatents
1000
500
0
1500
2000
2500
3500
3000
4000
Semiconductor firms: Relevant patents vs basic research publications, 1981-97
IBM
Motorola
Toshiba
Mitsubishi
Hitachi, NECTl
Fujitsu
ST Micro
Siemens
Matsushita
NTT
Intel
Natl semi
Philips
AT&T
Image by MIT OpenCourseWare.

13. Intel Summary and Take‐Aways
• Creating Value Often Requires Industry‐wide
Coordination
– Technology Leaders can benefit by being first on S‐curves and market
diffusion curves
– Free Rider Problems can emerge
• Tradeoffs between Value Creation and
Value Capture can emerge
• Effective Organization Balances Exploration
and Exploitation

14. Looking Forward:
• S‐curve papers handed back; most groups did
well.
– Grading focused on ways to create and destroy
value.
• Reflections on Effective Organization:
– Organization Structures:
• Amount of Structure
• Connectivity
• Internal vs. External
– Organization Processes:
• Co‐evolving
• Exploration and Exploitation
• Patching
– Incentives:
• High Power “entrepreneurial” incentives vs. Coordination