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Reducing the cost and impact of innovation

02 July 2009 | By Mark Osborne | Editor's Blog

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r. Dirk Ortloff, is Co-founder and Chief Technology Officer at Process Relations GmbH.Dr. Dirk Ortloff, is Co-founder and Chief Technology Officer at Process Relations GmbH. Here he discusses the advantages of investing in new technologies and methodologies during the economic downturn as a guest columist.

It is no secret that the semiconductor industry has suffered over the past year, with sales down by 6% in 2008 compared to 2007, according to figures from the GSA. Nor is it much of a secret that many industry figures have championed innovation as the key for companies to ride out the storm and indeed to prepare for the upturn when it comes. It is very difficult to disagree with this viewpoint, innovation is crucial to any company, recession or not. However, when we think of innovation we often only look at the straightforward and tangible implications. By this I mean that people associate innovation with new products or new strategies. However, the main challenge for engineers now is that new technologies are increasingly complex and at the same time need to be developed within a much tighter time scale at an increasingly competitive price. To meet these challenges innovation needs to go a lot deeper into a company.

When developing new products or technologies what many people fail to consider is the Total Cost of Ownership (TCO). This refers to the full burden of costs involved in development and innovation. TCO goes far beyond the usual costs, overheads and staff costs. It also incorporates all of the costs involved with acquiring new or better machinery, the HR costs of taking on new staff, the costs of adopting new methodologies and even activities such as staff training that are often overlooked. This is the depth of innovation to which I refer. It is not enough to develop a new product. Rather, in order to engender long term innovation and commercial success, companies need to be looking at a much bigger picture.

What is more, there is a huge advantage to dealing with these issues during an economic downturn: costs are lower during a recession; generally it is a time when companies will be operating with reduced staff levels; and lastly during a recession there will be, generally speaking, more bandwidth and resources available within a company. The findings of a McKinsey study of the 1990-91 recession show how companies can take advantage of these circumstances. The study found that companies that remained market leaders or became serious challengers during the downturn had done so by increasing their acquisition, R. & D., and ad budgets, while companies at the bottom of the pile had reduced them. Certainly there are already companies that take advantage of these circumstances; IBM has a stated policy to invest during downturns - in people, in training and in technology. But it is not necessarily a widespread philosophy. Most companies understandably view downturns as a time for cost cutting and a rationalisation of activities. However, to introduce these disruptive technologies and methodologies internally, there is no better time than during an economic downturn.

Not only are the costs of new machines, software or technology lower during a downturn, but also a whole raft of other cost savings can be made. For instance, during times of reduced staff, introduction costs and hurdles for new systems or procedures are much lower.  Moreover, instituting more staff training during a downturn, when staff levels are lower, is a significant cost saver. And more generally in economic downtimes more resources are available for evaluating current practices and learning about new ones anyway. During an upturn there is very little bandwidth, in terms staff availability and time pressures, for introducing these new technologies, procedures or training courses.

Companies need to prepare for the next upturn, and in recent months there have been more positive economic signs. Future Horizons’ latest Global Semiconductor Report shows that April 2009 had the strongest month-on-month growth for April since 1996. Ultimately companies have to find ways of doing more with less (during a market or production rise companies will generally have fewer engineers than at the peak of the market). Of course, new products and new ideas are what will ultimately deliver the commercial success technology companies desire, but where will these products and ideas come from? These things cannot be left up to chance and investing in your company, your infrastructure and your staff has the potential to give you a significant head start.

Process Relations GmbH is a software company offering software solutions and related consulting services in the area of semiconductor process development. The offered software solutions address customers performing semiconductor process development and developments of silicon based MEMS processes.

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