Technological and service innovation in intensive by leg61528

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									                      Paper to be presented at the DRUID Summer Conference 2003 on
                         CREATING, SHARING AND TRANSFERRING KNOWLEDGE.
                         The role of Geography, Institutions and Organizations.
                                      Copenhagen June 12-14, 2003


                                              Theme A


  Technological and service innovation in intensive service manufacturing: the
         case of industrial computer industry development in Taiwan

                             Chao-Tung, Wen / Cheng-An, Phil Tsai
  Professor of Graduate Institute of Technology and Innovation Management, National Chengchi
    University / EMBA & Ph.D. Candidate of Graduate Institute of Technology and Innovation
                           Management, National Chengchi University


                                        Chao-Tung, Wen
                 64, Chih-Nan Rd., Sec. 2, Wenshan, Taipei 11623, Taiwan, R.O.C.
                               TEL:(886)-2-29393091 ext 81019
                                     Fax:(886)-2-29363765
                                   E-Mail: jtwen@nccu.edu.tw

                                      Date of submission        5.12.2003


Abstract

   This paper addresses three interrelated phenomenon: industry life cycle, innovation patterns,
and knowledge development. Our study bases on the theoretical framework of encompassing the
service innovations and technological innovations, and applies it to the intensive service
manufacturing in Taiwan.

   This study has some findings. First, strategic reposition is the major driving force to change the
value of service innovation. Second, technological innovations follow the dynamic trajectory of
industry life cycle. Third, varied activities in technological and service innovations are necessary
to form the solid foundation for customer service. Fourth, new concepts like co-production and
knowledge sharing found in service innovation are also intensively used in manufacturing service
firm.

Keywords: intensive service manufacturing, technological innovation, service innovation,
co-production, industry computer industry



JEL code: O320
1. Introduction
   Innovations have contributed to the growth of economy not only in manufacturing industries
but also in services industries. Abernathy and Utterback•1975• detailed the dynamic processes
that took place within an industry and its firms during the evolution of a technology from the fluid
phase through a transitional phase to the specific phase. However, the perspective of industry life
cycle mainly focuses on technological innovation within manufacturing, reflecting that innovation
theory has its roots in a time when production was still the major economic activities. Eventually,
innovation theory has been developed essentially on the basis of analysis of technological
innovation in manufacturing activities•Gallouj and Weistein, 1997•.

   However, the specific properties of service activities lead to difficultly measure by traditional
methods of technological innovation. Besides, most economists put the technology at the center
and service at the periphery when the innovations were studied•Gardrey and Gallouj, 1995•.
These lead to conduct studies and surveys on innovation in services •Gallouj, 1994,1996; Gallouj
and Weistein, 1997; Smits, 2002 •. Most service-oriented innovations focus on non-technological
forms of innovation. Consultancy services, for example, are an interesting area for empirical
studies on service-oriented innovation. According to Sundbo•1994•, innovations in services did
not follow the technological trajectory but rather the service-professional trajectories•Gallouj and
Weistein, 1997•. These two tracks of innovations are often separately used to explain the
innovation activities in terms of manufacturing or services.

   In Taiwan more and more successful manufacturing firms, like Taiwan Semiconductor
Manufacturing Corporation, Advantech Corporation, LiteOn Technology Corporation etc., claim
their companies as manufacturing service firms. This new type of high growth and superior
performance firm has the characteristics of service-oriented innovations and technological
innovations simultaneously. Neither technological track innovation nor service-professional track
innovation alone can explain the new phenomenon well.

   While the theoretical development of encompassing service innovations and technological
innovations is still in its early stage. Its empirical testing is also rare. The purpose of this paper is
to empirically investigate the characteristics of intensive service manufacturing firm and deduce
the possible implications for further enquiring study.

    We draw some findings from this exploratory study. First, strategic reposition is the major
driving force to highlight the service innovation. Second, technological innovations basically
follow the dynamic pattern of industry life cycle. Three, the combined activities in technological
innovation and service innovations are necessary to form the solid foundation for customer service
and satisfaction, Fourth, new concepts and new advanced technology often used in service
innovation are found in intensive service manufacturing firm.




                                                   1
2. Literature Review
   Three paradigms have been identified to emphasize different aspects of management: the
manufacturing paradigm, the bureaucratic-legal paradigm, and the service paradigm•Gummesson,
1994•. In this study, we chose the two relevant paradigms for discussion. Manufacturing paradigm
is focused on goods, technology-oriented, mass production, and mass marketing. The typical
features of service paradigm focus on customers and interaction with the customers when
delivering the service. A shift toward the service paradigm is taking place in all types of
organization, however the transition period is long. The looming of service paradigm with
innovation attracted scholars to further research, but the theoretical development and empirical
testing up to now is relatively insufficient and inconsistent•Wolfe, 1994; Van der Aa and
Elfring.2002•.

    Manufacturing paradigm postulated that the transformation of industries has been shown to
follow the life cycle from birth to maturity • Klepper, 1996; Abernathy and Utterback,
1975•.Abernathy and Utterback•1975• detailed the dynamic processes that take place in the
industry and the evolution of a technology from the fluid phase and the transitional phase, to the
specific phase. In the fluid phase there are a lot of experiments due to technological and marketing
uncertainties, which result in a high number of product innovations. Product designs are
experimental and change as producers learn more about market needs and understand more about
the potential of the evolving technology. The evolution enters the transitional phase as a dominant
design emerges, signaling a substantial reduction in uncertainty, and experiments, and standard
design formulated. The basis of competition shifts from product designs to differential features of
products. In the following mature specific phase, products build around the dominant design
proliferate and the focus shifts to process innovation, with product innovation being largely
incremental. The basis of competition becomes low cost. This is the typical perspective of industry
life cycle based on the technological innovation track and mainly focused on manufacturing.

   In the service paradigm, ad hoc innovation is an exemplar of service innovation•Gallouj , 1991;
Sundebo,1994, 1997; Gallouj and Weistein, 1997; Van der Aa and Elfring.2002•.Ad hoc
innovation is defined as “the interactive construction of a solution to a particular problem posed by
a given client”•Gallouj and Weistein, 1997•. The idea of this ad hoc innovation is to know the
corrective problem from client and then concertedly generate the solutions. This fundamental
characteristic of service innovations is the client participation in the design and production process.
The concept of co-production has been developed to account for this client involvement•Gallouj
and Weistein, 1997; Ramirez R. 1999; Van der Aa and Elfring.2002•.

   This co-production integrates the links between the service provider and client, which is most
important element missing from the notion of manufacturing products•Gallouj and Weistein,
1997•. This new relationship with customers in service innovation can facilitate the effectiveness
of corrective problem and efficiency of iterative and synchronic processes. For an intensive
service-manufacturing firm, it must change the value proposition to drive transformation within the
                                                  2
corporation and eventually resulted in the new service processes or capabilities.

   It is also very important to accumulate the available knowledge and experience over time to
harness synergistically to creatively generate new solution and knowledge•Gallouj and Weistein,
1997•. Ad hoc innovations facilitate to produce newly codified knowledge and competences that
can be formally used in varied circumstances effectively. The new system advances the
transparency of services and allows customers even to trace on-line that can transcending time and
space constraint for better satisfactions.

   Studies showed that advanced information and communication technology•ICT• are the key
tools to mobilize and integrate knowledge base and relationship capitals to transform the
competences of services activities.•Tinnila and Vesalainen, 1995; Gardrey and Gallouj, 1995;
Gallouj and Weistein, 1997; Van der Aa and Elfring.2002•. ICT allows for greater service
tradability•Freman and Soete, 1997•. ICT is penetrating into system for processing and
circulating information, opens up several possibilities for creating new types of services and
developing new ways to deliver the services•Gardrey and Gallouj, 1995•.




3. Research Method
   We chose to study the technological and service innovations in service intensive manufacturing
by reviewing the development of industrial computer industry in Taiwan. The industry cover
factory automation machine automation and embedded computing, annual sales over 3 billions
worldwide. Taiwan became one of the major sources supplying the industry. This study mainly
investigated the very first and the major firm of this industry, Advantech Corporation. It was
established in 1983 to provide the automation service to clients who used Hewlett-Packard•HP•
technology platform , and eventually resulted in the booming of industrial computer industry in
Taiwan.

   Our deign was what Yin•1993•has termed “exploratory, descriptive and embedded single case”
design. Exploratory and descriptive study focuses on the “ what “ question and its goals is to
describe the phenomenon theoretically. Embedded design denotes several unit of analysis. We
conducted our investigations at three levels: •1•the technology platform of industry;•2•top
management intention •3•innovations action. While an embedded design is complex, it provides
greater richness and multiple perspectives in explaining phenomenon.

   For this case study, we conducted 6 deep interviews with one founder and two top managers,
and collected the secondary data including internal meeting minutes, personal notes, internal
publications, historical documents, and so on. The interview questions concentrated on facts and
events, rather than on respondents’ interpretation. Each interview was conducted by at two
investigators, with one investigator primarily responsible for the interview and the other
responsible for taking notes and filling in gaps in the questioning. We followed the rules for this
                                                  3
case study. The 7 days rule required that detailed interview notes and impressions were completed
within 1 week. The second rule was to include all data. Third rule was to add our own impressions.


4. The Case of Advantech
   Advantech Co. Ltd. was founded in 1983 and is now a global leading for Industrial Automation,
web-enabled platform service provider. Positioned as "ePlatform Partner", Advantech offers a
comprehensive set of systems integrating hardware, software, service and infrastructure to
enhanced transaction and operation automation for enterprise web applications. Advantech
cooperates with system integrators to help their clients build added value into the applications.

   Advantech has more than 450 products and solutions under 3 major categories, industrial I/O
and software, computing platforms, and board computers and peripherals. The broad range of
applications are delivered through 4 major business groups - Network Computing Group,
Embedded Computing Group, Web Appliance Group and Industrial Automation Group.

   With about 1,600 employee, the worldwide revenues of Advantech was 265M USD in 2002.
Yearly growth of more than 30% has enabled Advantech to develop into a dynamic multinational
enterprise (see Table 1).

  Table 1: Operation performance of Advantech

  Unit: thousands NTD
                  Revenue             Profit               Expense           RD/Revenue
1994              621,216             (1,667)
1995              904,288             29,040
1996              1,308,936           118,032              112,308           8.58
1997              2,245,326           437,751              109,586           4.88
1998              2,963,009           815,794              141,081           4.76
1999              3,354,014           850,702              193,081           5.44
2000              5,426,344           1,229,735            302,187           5.57
2001              5,443,845           1,357,507            327,527           6.01



  Table 2: The geographic distribution of sales

                                               Unit: thousands NTD
                  1996        1997        1998          1999         2000
       Europe     248,661     644,608     952,187       1,128,333 1,443,059
       Asia       837,596     887,739     793,752       1,027,166 1,649,524
       America    --             --       557,908       649,895      1,024,691
       Taiwan     217,919     481,141     659,162       742,620      1,319,070
                                                    4
   In six regions that include the US, Europe, Southern Asia Pacific, Japan, China and Taiwan,
Advantech provides comprehensive function services to clients and has offices in 16 countries and
35 major cities and also have more than 60 distributors around the world to assist customers. (see
Table 2) Below is the development story of Advantech.

  Stage 1 (1983 to 1985): Start-up as system integrator for HP’s testing instrument

   Advantech initial position in the market was to integrate the hardware and software system to
provide testing services to their clients. The services they provided range from software
development, system analysis, coding, and examining the hardware performance.

   Advantech’s market information’s primary came from their customers. “The customer’s voice”
directed Advantech in developing their services. At 1983 the American company, such as HP,
dominated automated machine in Taiwan. One fully automated machine would cost up to hundred
of thousand dollars and typical small companies could not afford. Worse than that, HP was not
interested in providing tailor made software for individual customer: Advantech’s founder, Mr. KC
Liu, was a HP’s marketing engineer for 3 years. He found there were large demands in the market
for testing services.

    At that time, few persons had the capabilities to program this interface software, especially
using HP’s Basic and operation system. Mr. KC Liu coordinated an entrepreneurial team with
unique capabilities and market information to star up this new venture. As a system integrator
specializing in the interface services on automatic analysis senor and singular machine, Advantech
utilized their distinctive knowledge of HP technology platform and IEEE488standard to serve their
clients and created a new emerging industry in automation testing in Taiwan.

  Stage 2 (1985): Initiating Low-end System Product to Replace HP

   During the early stage, Advantech was working as a third party system integrator for the
customers of HP’s instruments, facilities and testing equipments. At that time Advantech was the
only company that possessed the combined capabilities in testing HP instruments system,
designing electric route and plate, and programming interface software. Because the tailor-made
service, Advantech had made fair amount of profit until three or four years later when the company
found out that different needs in technical service and maintenances from each customer become a
burden. And furthermore, maintenance requirements cost the company quite considerably both in
terms of time and money.

   Advantech attempted to make breakthrough by attempting to sell some products that have
common use in their market. The idea of making their brand product based on their knowledge of
the market and technology thus emerged.

    At the beginning, Advantech was developing their brand products under HP technology

                                                5
platform. Starting with integrating HP’s low end instruments, testing functions and interface,
Advantech produced parts with its own eclectic circuit route replaced certain lower end HP’s
products and interface components. At this phase, Advantech standard interface were still primary
HP’s IEEE488 to serve HP’s clients. To producing their brand products, Advantech established
new competencies of system design and assembly technology gradually. The product manager
system began to implement to coordinate the new product designing from market survey, product
design, to production and delivery.

    Stage 3 (1986 to 1988): Turning Solutions to PC platform from

   When personal computer were on the rise in the early 80’s, Advantech internal researcher were
also aware the importance of studying APPLE II. They used APPLE II as a controller platform to
conduct tests before APPLE II was officially introduced into Taiwan. As PC becomes a standard
and clone PC prevailed, Advantech saw the trend, followed the dominant technology, and grasped
the emerging opportunities to enter into new technological platform.

  Advantech started to make attempt to replace HP’s several hundred thousand US dollars
machine with low cost IBM PC based one. Due to the one-tenth difference in price by using
PC-base platform, it is considerably cheap and demand increased like tornado.

   Early of the time HP has it’s proprietary specification. The IEEE488 standard interface was
embedded in its engineering computer and industrial calculator, but IBM’s IEEE-488 was an open
architect, therefore manufacturers standard interface card will be able to insert into IBM’s PC.
Advantech took advantage of this opportunity and try to produce the cards internally. Collaborated
with software house, Advantech developed its first interface card.

   As the technology platform changed, Advantech needed to establish new competencies such as
knowledge of PC operation system, PC basic software programming, PC CPU technique
knowledge, industrial controlling interface technique, new system integration capabilities and so
on. Besides, the interface cards are sold all over the world, so Advantech gradually built up their
international sale forces and marketing network.

  Stage 4 (1989): Entering PC-based industrial computer

   As Taiwan’s PC industry surging, the government encouraged company to develop related
application technologies. In 1989 Advantech transferred industrial computer chassis mechanism
design from Industry Technology Research Institute•ITRI•. This engagement made Advantech
extend to the field of mechanical design and industrial computer chassis. Previously most
industrial computer chassis are used only for industrial purpose, which came with a power supply
but without the main board or any other component. Those who needed these chassis were
research institutes and a dozen of technological companies. Many clients bought their own main
board.

  The industrial computer is used under much sever environments than the personal one. To
                                                6
perform properly, its mechanical chassis stability and system security requirement is much higher.
When selecting a mechanical chassis, there is also the consideration for expandability and
scalability aside from the security points of view. Entering the filed of industrial computer had
made Advantech’s technology and quality expand enormously. In this process Advantech has built
a solid foundation for the leader in industrial computer.

   Actually, over the years, Advantech was the only survived company transferred industrial
chassis technology from ITRI, because Advantch saw and solved their clients’ problems. Besides
the newly chassis related technology transferred from ITRI, Advantech also established case
assembly capacity and new testing competencies.

   Stage 5 (1993): Start to Provide single board computer Solution•SBC•

      Taiwanese PC industrial technology has grown side by side with the global PC industry
booming and became the major supplier of PC and components. This cultivated many talent people
familiar with PC technology, be it software or hardware. PC technology in commercial application
could easily be transferred to industrial application. Without this advantage in Taiwan, Advantech
couldn’t become what it is today.

      Most main board them are layout flatly in the computer. When it was layout vertically, the
main board was divided into tow pieces. They are IC board and back plate. The back plate consists
of a PC board which related to the expand ability of industrial computer. Back plates are
categorized into passive mode and proactive mode. Passive modes sole function was able to
expand, while proactive modes were similar to computer main board. The proactive modes
basically contain the ability to modulization, can be varied in size and the slot designs can also be
varied. Therefore, it created a hot bed for all-purpose industrial computer.

       Advantech didn’t posses the capability and the qualification to design a main board at the
earlier phase. Through ODM requirement from the buyers, Advantech developed and trained its
people, learned how to design the main board. Product manager was assigned to integrate and to
issue the specification as well as to set functional performance.

        At that time most of the main board were flat, Advantech design vertical main board
primarily for propose of its customers. Unlike commercial computer’s main board, Advantech
was very aware of its role and position to focus on industrial applications.

      Afterward, there was a new flat CPU card. This card was designed for a special need and
purpose, the card is used more on professionals and it doesn’t need the back plate expanding
functions but instead enhancing the performance on the CPU card. Just like video/ audio industries
must specialize and improve in sound quality without expanding the back plate. This in turn makes
the CPU board much simple and cost less. There are different needs in different industries, after
producing many singular industry computers, Advantech then regroup them into two different
categories: System on Module •SOM• and Carry Board. SOM produces different functions due

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to different industrial applications, later on, it be came system on chip. On the other hand, system
on chip can be presented as the early version of SBC. According to the industrial needs evolved
gradually into standard forms and Carry Board can adapt to the differences industrial needs to
apply the difference interface card.

       In this stage, Advantech needed to renew and re-deploy their technological, marketing and
organizational competencies and resources for the extensively new product development and
sharply increasing sale scope and loading. Advantech extended their oversea offices up to 25
countries and also started to set up their international marketing intelligence, technical services,
distributor management, and maintenance and repairman system.

   Stage 6 (1998): The year of LCD Panel PC

       At 1933, Advantech started to make LCD panel PC. Due to Advantech’s prior experience
and knowledge, it had the capabilities in designing, configurating and producing industrial
computer. Under the enriched technology and various platform capabilities, Advantech began to
develop ultra-thin computer. A Typical industrial computer equipped with power supply and the
chosed of main board be industrial or commercial main board, or back plate, latter can only plug in
into single board.

       Based on the previous technical foundation, in 1996, Advantech begin to configurate and
develop panel computer technology, by adding LCD monitor into industrial computer. Panel
computer combine main board, single board computer and industrial chassis into one singular
product. Main motive to develop panel computer came from market needs, staring from the
clientele information and requirement.

       In this stage, Advantech advanced its competencies and resources for the new product
development. Advantech reinforces their international marketing intelligence, technical services,
distributor management, and maintenance and repairman system. The most important thing was to
integrate their unique experience in varied fields and to build up as a knowledge base and to
formulate the routines to execute the life cycle of product. That is product development, design,
production and service for customerlization.

   Stage 7 (2000): Entering the service of E-enterprises

    Based on the previous solid foundation, Advantech repositioned itself as a total e-business
enterprises at the beginning of 2000, through establishing the e-service system, e-repairs and
maintenances automation•e-RMA•,design to order service•DTOS•system, build to order service
(BTOS) system, and global peripheral supply system. Advantech achieved their new strategic
intention on customer relation management•CRM•by adopting professional software at the front
office and enterprise resource programming system at the back office to enhance and increase the
efficiency, effectiveness, and quality of customer services, production economy and knowledge
utilization. Their business partners and customers can access their services and information by

                                                 8
   multiple channels at the customers’ convenience and requirements. The new business concept of
   e-operation increasingly satisfies the customers’ need, for example, it increase the capacity of
   order processing to respond to customer within 2 hours compared to at least 48 hours in the past.

      The CRM system not only provides better service but also serves as a knowledge center
   throughout the entire company. Customer relationships were at the heart of business operation and
   were recognized as very valuable capital assets. Through this CRM system Advantech could
   quickly know the corrective problem from client and then concertedly generate the solutions by
   client extensive participation in the design, testing and production processes. This interactive
   construction of a solution to a particular problem had increased Advantech reputation in the
   industrial computer allover the world. The concept shows in Figure 2.




                     Siebel Sales.
                                                Front Office                    Back Office
                     Field Service
                                                   CRM                             ERP

                     e-Channel
                                               •Sales                         •Finances
Customers                                      •Services            EAI       •Logistics
                     Call Center               •Marketing                     •Production
                                               •Knowledge                     •Distribution
                     Personalized              Base
                     B2C

      Figure 2: The concepts of CRM system of Advantech



      Advantech offers Internet support through e-Service system. This browser-based service
   provides customers with help, no matter their location. This system integrates various databases,
   such as a knowledge database, product information, BIOS/manuals/utilities downloads, technical
   document reference and troubleshooting guides, to provide customers with quick and accurate
   on-line services. For technical questions, Advantech is committed to respond within 48 hours with
   rebuilding the internal process through fully tracked and coded.

       For repair service, Advantech designed an e-RMA system for online repair service. Customers
   can access this system to handle RMA cases, go online, track and expedite the status of individual
   or multiple repairs in progress, which includes repair statistical reports. Advantech has established
   a team in each geo-regional support center to serve customers.

      For technical support, Advantech organized an application engineering team, which cooperates
   with colleagues from all global regions to provide customers with real-time technical support.

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Advantech’s CRM system also provides a volume of knowledge input to share with customers'
different application experiences.




   A Customerized Panel PC Application Story: Team up with system integrator to
jointly develop new products
   Based on the win-win concept of co-production, Advantech cooperated with customers to
product development. Not only do supply customers with the solution they required to meet their
business objectives, Advantech also provide associated services and experience that benefit
customers. This story illustrated these services and how Advantech developed product
effectively to meet the market needs.

   This particular system integrator wanted a product that would operate to provide PC-based
cable TV plus provide a web interface that is e-commerce capable. Other features requested for
this product was a touch screen TFT LCD, built-in 10/100 Base-T Ethernet, built-in 10xDVD
drive and speakers. This customer also had their own external design in mind and was looking
for a solution provider that had experience making similar products. They also required that the
product pass all FCC, UL and CE licensing requirements and ensure basic engineered elements
such as waterproofing and heat dissipation were also addressed. This narrowed the candiate
considerably, leading them to choose Advantech.

   Advantech’s experience has been gained over many years from making similar products with
similar demands. Experience gained from working with Advantech suppliers that help make
such items as the injection molded casing for the product and allocating key component parts
such as the LCDs, DVD ROM and CPUs.

Advantech helped make this project a reality by bringing together and coordinating all stages of
this project. These stages included the design and manufacture of the tooling required for the
injection molded parts as well as the stamped metal parts. Advantech modified an existing CPU
board to give this customer a fast supply of the custom fit board with all the features they needed
and did complete unit manufacturing, assembly and testing. And most importantly, Advantech
provided support for local RMA/repair service.



 5. Analysis and Discussion
  Table3 summarizes the major difference between commercial PC industry and industrial
computer industry, which set the stage for the development of Advantech, an intensive manufacturing
service company.




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  Table3: Difference between PC & industrial computer industry

  Attribute                    Personal Computer                       Industrial Computer

  Technology platform          Windows, Intel                          Windows, Intel

  End user                     The general public                      The industrial enterprise

  Market                       Global                                  Regional

  Sales channel                Through shop or direct sale             Through system integrator or
                                                                       professional distributor

  Product life cycle           2-3 year                                7-10 year

  Operation environment Office, home                                   Production site

  Requirement                  Speed, performance                      Stability,         extendibility,
                                                                       compatibility

  Production type              Large batch volume, uniform Small batch volume, assorted
                               spec, mass production       spec, customized production

  Average batch                Several 10K and above                   Several 100-lower 10K



   By exploring the Advantech story, we summarize key innovations through different technology
platform, and categorize them into technology and service innovations in Table 4. Then we
identify the necessary knowledge developed internally and acquired or transferred from outside in
Table 5.



  Table4: Innovations in Advantech development trajectory

                 Technological innovation                      Service innovation

  HP platform    Focused on new product development and Major new practices came from product
                 production method like providing solution manager system and new technical service
  •1983-1986•
                 for automation testing••T•, new products to
                 replace low-end HP instruments••T•, and
                 self-developing product design methodology
                 and assembly technology••F•

  IBM         PC Major innovations are:•1• new products Service innovations focused on international
  platform       and production methods on interface card•• marketing intelligence • • F • , technical


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                  T•, industrial chassis••F•, single board services••F•, distributor management••
•1986-1998•
                  computer••T,•W•and panel PC••T,•W•; F•, and maintenance and repairman set up
                  • 2 • extended oversea office up to 25 system••F•. All these innovation activities
                  countries.                                     were the facilitators for various product
                                                                 introductions

Internet          Major innovation are • 1 • various new Repositioning the company as an e-service
platform          products of single board computer, Carry firm drive many service innovations ,
                  Board••T•, SOM (•T), and SOC (•F•;•2• including knowledge base construction,••
•1998-2002•
                  extended product••T,•W•to new industry T•, developing routines formulation••F•,
                  applications which has different domain e-service system • • W • , e-repairs and
                  knowledge like medical , entertainment , maintenances automation••W•, design to
                  transportation,     video/audio       industry order service system••W•, build to order
                  application.                                   service system • • W • , global peripheral
                                                                 supply system••W•, and customer relation
                                                                 management••T•

Remark:           The novelty of innovation in industrial computer industry, according to Advantech
                  executives •F: new to the firm; •T: new to Taiwan; •W: new to global




Table 5: The attributes of knowledge development

                Knowledge transferred                           Knowledge developed internally

HP platform Automation testing technology•transferred Capability to program the interface software
                from HP and NSC project•
•1983-1986•                                                     Product design and assembly technology
                HP Basic software knowledge•transfer from
                HP•
                Industrial chassis design•transferred from PC operation system knowledge, PC basic
IBM        PC
                ITRI•                                           software programming, PC CPU technique
platform
                Assembly and testing techniques•transferred knowledge, industrial controlling interface
•1986-1998• from outside research institutes•                   technique
                                                                New system integration capabilities

Internet        Professional     software   knowledge      like Co-production    Integrating   the    customer’s
platform        enterprise resource planning and customer knowledge
                relation   management • transferred      from
•1998-2002•                                                     Linux platform communication technology
                outside service companies•
                                                                applications
                Different domain knowledge in responsive
                industry   application • transferred     from Wireless technology
                alliance by mutual sharing and learning•
                                                           12
     For this exploratory case study, we proposed the following findings:

1)     Technological innovation followed the industrial life cycle model and are the basis for
       growth and service

   The technological innovation of industrial computer industry followed the product life model as
Advantech transformed their technology platform from HP platform to IBM PC based platform.
Adavantech was the first mover of this industry in Taiwan and continuously established their new
competences related to PC platform and developed hundreds of new products to satisfy their
clients’ need. As we observed attributes of PC applications, the technological innovation of
personal application has proceeded to the specific phase, but the industrial application stays at the
transitional phase due to the various clients application circumstances.

   The technological innovation included the designing new products, developing new production
methods, penetrating into new geographic markets, and setting up new supplier logistics systems,
which are the typical features of Shumperter’s innovation of new combinations. This technological
innovations of industrial computer matched to Abernathy and Utterback’s•1975•perspective of
industry life cycle mainly focuses on product design and production. Advantech developed more
than 350 new products in the past decade. The competencies to develop and deliver new product
definitely are the fundamentals for Advantech to reposition itself as an e-service enterprise later
on.

2)     Intensive service manufacturing should have service innovation competence to support their
       reposition

   In the early stage from 1983 to 1998, the are many service innovation like product manager
mechanism, technical service system, maintenance and repairmen system, marketing intelligence
system, distributor management system. However, these service innovations were recognized to be
the facilitators for technical innovation not clearly that they are important service innovation.
Only when Advantech reposition itself as a total e-business enterprise in 2000, the service
innovation had its position and became the center of innovation activities. Through establishing the
e-service system, e-repair and maintenances automation system, design to order services system,
build to order service system, global peripheral supply system, Advantech utilized customer
relation management system to enhance the capabilities of customer services and also provides a
volume of specific knowledge and unique experiences to share with customers.

   Advantech offers Internet support through e-Service system. For repair service, Advantech
designed an e-RMA system for online repair service. Advantech has established a technical team
in each geo-regional support center to serve customers’ needs .For technical support; Advantech
organized an application engineering team, which cooperates with colleagues’ worldwide to
provide customers with better real-time technical support.

                                                  13
   All these service innovations are not only need quick adaptation of advanced information and
communication technology, but also the ability to create new business concepts, business model
and to initiate organizational renewal. These innovations in service perspective has empirically
fundamental differences in views of traditional technological innovations which only follow the
technological trajectory, but service innovation basically more or less follow the institutional
formalization of service-professional trajectories•Gallouj and Weistein, 1997•.

3)   The concept of co-production is very essential in intensive service manufacturing and plays
     an important role of driving the new solutions to customers.

   Advantech is committed to providing the resources that allow responding quickly to market
needs and maintain the innovation customer’s demand. Advantech invests around 5% of revenue
and dedicates 20% of their workforce to R&D. It accumulates over 100 patents and introduces
more than 30 new products each year. Advantech has deployed an R&D network covering the four
Geo-regions of Europe, USA, Asia and the Pacific to fulfill local needs.

   Advantech integrated their varied and unique application experience and knowledge to
configure special a knowledge base in industrial automation and related applications. Using these
accumulated knowledges, Advantech formulated the routines on whole life cycle of product
development, design, production and service for customerlization. Through its CRM system,
Advantech co-produces with specific client by extensively interactive participation in the design,
testing and production processes. This interactive construction empirically supports the concept of
co-production, which emphasizes client involvement.

   Combining worldwide application innovation and manufacturing efficiency, Advantech utilizes
resources from all of its offices, ventures and partnerships, to bring web-enabled solutions to the
factory floor and satisfy its customers worldwide. The project shown in the application story
further highlighted that the co-production of developing new products or services is the key for
Advantech to compete.

4)   Responsive manufacturing is also the core competences for intensive services manufacturing

   Advantech has made significant gains in the manufacturing flexibility, capability and efficiency
by strategically deploying state-of-the-art equipment, enterprise resource programming software,
customer relationship management system, and process improvements. These advances increase
their responsiveness to domestic and oversea customers' needs, with wider product offerings,
higher yield rates, short product development, and good quality and reliability of products and
services. These competences also allow Advantech to offer full OEM/ODM capability to handle
customers' special application needs, which is the basis for mass customizations.


5)   Sharing knowledge and experiences through ICT with customers is a must to facilitate the
     manufacturing services

                                                14
   Based on its special knowledge base of industrial automation and related application, beginning
in 2000, Advantech introduced the CRM and ERP system. These two systems facilitated the
efficient utilization of knowledge base as well as new product development routines for better
manufacturing services. The adoption of advanced information and communication technology
including the software and hardware plays a very important role in fulfilling the strategic intention
and new business concepts from top management. Advantech had spent USD10 M in ICT and
relevant staffs training.

   The empirical results supports scholars view that advanced information and communication
technology are the key tools to mobilize and transform knowledge base and relationship capitals
into competences of services activities. Gardrey and Gallouj (1995) and others have indicated that
ICT opens up several possibilities for creating new types of services and developing new ways to
provide services.

   The advanced information and communication technology together with the strategic intent and
new business concept from the top management made the Advantech to grow and to lead as an
intensive service manufacturing firm.

6)   Customer relationship can be the valuable capital assets to create value for company

   Advantech always put their customers at the heart of business operation from the beginning
stage of entrepreneurial venturing to the latter stage of e-enterprise. The founder, Mr. Liu, had the
sales background and drives the company to be always customer-oriented firm. Beginning in 1992,
Advantech held global clients and distributors conference annually and maintained a long-term
relationship with them. There are more than 50 clients with at least seven years relationship, and a
dozen over 15 years.

     .Adventech established the product manager system to plan the new product through
marketing survey, set up the international marketing intelligence system, technical services system,
and maintenance and repairman system, configured a knowledge base, formulated the routines for
customerlization. And finally Advantech introduced the CRM system to provide better services.
All those strategic investments are based on the concept of that customers are the driving force of
growth and that customer relationship is recognized as very valuable capital assets.

  This empirical result support that relationship capitals together with knowledge base through
ICT can transform the competences of services activities.•Vesalainen, 1995; Gardrey and Gallouj,
1995; Gallouj and Weistein, 1997; Van der Aa and Elfring.2002•.




Conclusion
   The Advantech case shed many lights on the characteristics of intensive service manufacturing
that develops service innovations and technological innovations simultaneously. The major
                                                 15
difference from traditional mass production manufacturing firm is that the intensive manufacturing
service firm provides tailor made solution, directly responds to customer desire with short cycle
time and production efficiency, and co-produces with customers. Hart•1995•conceptualized this
new idea as mass customization. The theoretical development and empirical testing of service
innovation is relatively new. This investigation industrial computer industry is an attempt to enrich
the empirical evidence in the field.

   The findings of this study not only supported many perspectives of scholars but also provided
some implications for further research. We draw the research finding with theoretical perspectives
into the following conclusions.

   The change of value proposition and competences transformation is driven by the strategic
intents and repositioning from manufacturing paradigm to service paradigm as we saw in
Advantech. Facing rapid change environment and demands of product customization, firms are
forced to have visionary intention to reposition their service components in their routine processes.
Strategic repositioning highlights that service component are much important features of realizing
any innovations. This intensive service manufacturing has the characteristics of engaging service
innovations and technological innovations simultaneously and complementarily.

   Technological innovations in intensive service manufacturing follows the Abernathy and
Utterback’s•1975• industrial product life cycle from the fluid phase to the transitional phase , and
product and production was still the major innovation activities.

    The services innovations in intensive service manufacturing did not follow the technological
trajectory but rather the service-professional one, which are mostly based on adopting the
advanced information and communication technology and on creating new business model or
organizational renewals.

   Strategic repositioning drives the concept and implementation of co-production to account for
client involvement. Co-production integrates the link between the service provider and client to
embraces clients’ voices, experiences and knowledge to concretely develop the solutions. The
relationship with customers in service innovation can be recognized as valuable capitals that could
facilitate the effectiveness and efficiency of iterative and synchronic processes. For a service
intensive manufacturing, it must change the value proposition to drive transformation within
corporation and eventually resulted in the new service processes or capabilities.

   It is also very important to accumulate the knowledge and experience acquired over time to
creatively generate new solutions to customer needs and knowledge. Advanced information and
communication technology are the key tools to mobilize and integrate this knowledge base and
relationship capitals to develop the competences of services and technological activities. ICT also
facilitates to produce newly codified knowledge and competences that can be effectively used in
varied circumstances, and mostly transform the tacit knowledge and competences into various
services.
                                                 16
   There are some suggestions for further research. First, study could extend to multiple cases for
replication logic, to have better generalization and validity. Second, the operationalization of major
constructs like strategic reposition, technological innovation, service innovation, and
co-production, could be refined so that is more empirically refutable for theoretical development.
Third, the logic linkage of theoretical framework and the empirical investigation could be more
structural for inductive interference. Fourth, the study could emphasize the performance not just
innovations of the firm as a dependent variable to get more practical insight for practitioner to take
effective strategic action.




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