Stanford Seminar - NEC’s New Strategy for Inbound/Outbound Open Innovation

Good afternoon everyone and welcome to the Tuesday, May 7, 2019 session in our series on entrepreneurship and Asian high-tech industries. Today we're going to address an aspect of the ecosystem for entrepreneurship that has not been well known for success in Japan. We're going to look at the role of large companies in partnering with startup companies and what kind of impact that can have on the ecosystem for startup success in a country like Japan. We've talked about this in several sessions already. In the very first session with Tim Romero, we discussed how Japanese large companies—Tim was acting as the CTO for the venture capital investments inside Tokyo Electric Power Company—so we've touched on this before. But I'm delighted that we have a speaker who has really dedicated his recent career to establishing an ecosystem for research and development from the standpoint of a major Japanese corporation. Our speaker today is Mr. Motoo Nishihara, who is the CTO, Chief Technology Officer, of NEC Corporation. He's had this role since last month. Before he was CTO, he was in charge of all research and development activities inside NEC, and he's also responsible for innovation strategy and technology investment management of the company's intellectual properties. He will be concerned today not only with inbound open innovation—how to obtain new knowledge and partnerships with startup companies for the sake of NEC's strategy—but also outbound technology open innovation, which is part of the Chesbrough model but isn't talked about so much. His previous job before CTO was Senior Vice President in charge of NEC's central research labs, which included not only the main lab in Japan but also laboratories in the United States, China, Singapore, and Germany. Before that, he held general manager positions in research including cloud system research and system platform research. He also has experience in product development and in the business divisions at NEC. He got his master's in electrical and computer engineering from Carnegie Mellon and his bachelor's from the University of Tokyo in mathematical engineering and information physics. While in his senior VP role, he established new labs in Israel and India, and he started to focus on this ecosystem concept. Today we're going to hear how he's using this concept to speed up innovation inside NEC through partnerships with startup companies. Thanks very much for coming today. We're very happy you can be here. Thank you.

Before you leave that slide—no, Nishihara-san, go back to the previous slide. Would you—this one? So right, that one. So basically, inside the research lab, the researcher thinks of a real-world use case, or does the idea come from outside? Does the use case come from the people outside, or does it come from the researcher?

Is NEC only in Silicon Valley, or do you also have NEC X in other areas?

NEC X was established last year, and as Nishihara-san mentioned, our mission is to generate new business based on NEC Labs' advanced technology in the US market. We aim to create a second DotData-type of business. I believe NEC Labs has very good technology, but just having technology doesn't make sense in terms of business creation. But let's imagine a combination of talented people and business intelligence or market insight—I'd like to see what happens. Maybe new market opportunities or business possibilities will emerge. NEC X has just started, and I welcome any feedback or comments afterward. Thank you.

Nishihara-san, if you don't mind, I want to ask the first question. One of the real typical problems with a startup company trying to do anything in Japan is establishing trust—you don't have a long reputation. A startup company wasn't started in 1899. How can this outbound process work if you've got these advanced technologies that a startup company or a business person here might use? How do those discussions actually happen? This might be something for NEC X—but how do you do this? How do you really get the discussion started with the outside people? Maybe let's go back to DotData.

Can you say what kind of things came in from the outside into DotData—not from NEC? What came in from the outside—venture capital? Currently?

You're not yet. So maybe it's still going on.

Maybe the venture capital people in Silicon Valley can help with connections.

Is it easier for him to do that with the name DotData than it would be with the name NEC?

So ideally, how often would you like to see this happen? Would you like to see one or two a year, or more or less?

I think one of the issues is the fear of being inside a big company and talking to people on the outside. Would a researcher inside NEC Labs talk to NEC X first? How would this proceed? How do you do the next version of DotData?

So from their side, who's going to help that process?

And NEC X was able to help make this happen here in San Mateo. That's kind of unusual, I think.

Does that take time based on NEC's internal structure? It's a little bit more difficult internally?

Would your vision be to create an NEC X in other places besides Silicon Valley?

All right, let's open the floor to questions. Go ahead.

NEC is a famous company, very well-respected. This is, however, a new venture. In a simpler world, we have innovative commercialization companies that are either tech push—where there's technology trying to find a market—or unmet needs, where there is a market trying to find a solution. In Silicon Valley here, we tend to be more interested in unmet needs where there is a chance for disruptive innovation. If you have an unmet need and are doing disruptive innovation, cutting-edge technology is not of interest unless you know that it will in some way enhance your ability to meet that unmet need. How will NEC let startup companies in Silicon Valley and elsewhere who have an unmet need know what technologies NEC has, so that they can look at the catalog and decide whether it would make any difference for their innovation?

John's point is that a lot of innovation in Japan looks like it's seed-driven, whereas here we tend to be more need-driven. If you've got people on this side who run from need, how can they find out what opportunities there are to benefit from this outbound open innovation?

Do you think this will lead to more direct communications between NEC researchers and people outside?

Okay. I saw your hand next—why don't you go ahead?

I have two questions. First: the lab person came out of NEC and became a startup CEO. I definitely understand the good relationship and friendship benefiting the startup, but are you afraid that NEC is losing its top brains? That's my first question. My second question: DotData is based on technology that NEC already has. So is there another case where NEC sees an opportunity in a business but doesn't have the technology yet, and starts a new company to recruit top researchers to work toward that business?

This is an interesting tension between what NEC has—it's really strong—and the whole world is very big. You already have research labs in seven different locations in addition to Japan.

I've seen several hands. Prakash, I saw your hand first—you're down front.

You set up DotData, a company set up by a total stranger—to you at NEC, he's a stranger. What's the bright idea? I understand there's a certain segment market, and the question is whether there may be a way of marrying something inside NEC with what DotData is doing to produce a viable product. Or do you see this as largely being a way for you to use your own employees and throw them off the cutting-edge roses into the garden?

I'll give my opinion. I see a possibility for industrial development arbitrage here, because a lot of data analytics have moved forward here faster than they've moved in the Japan market. So this could be a significant speed-up possibility—sending somebody from NEC over here to develop the market here, and then gradually building up what has to be built up with the old traditional customers in Japan. This could definitely happen.

I see a tension between inbound and outbound. You've got lots of business units that are somehow funding the R&D and want to be customers of the R&D, yet they see potential competitors. Could you talk a little bit about, first of all, the allocation process—how you determine internal development and what you're putting your research in based on internal customers—and then how do you see managing the tension between R&D and the business units?

You're saying there are internal discussions and prioritization of projects and how they're funded, driven by business unit direction. Is the general focus of NEC X non-competitive spin-outs, or pre-competitive?

For sure. But it's interesting because this is clearly a vehicle for—

I should say that for seven years now, NEC has been one of our major research supporters, and one of the things we're doing is surveys of startup companies worldwide in particular areas of new technology. So I know that NEC Labs in some ways has very good knowledge of the most recent trends on the business side of startups. I would expect—this is Richard talking—that the business units are very customer-focused and customer-driven by existing customers, many of whom are in Japan, where a lot of these analytics have not developed as much. A lot of the new businesses here have not really reached Japan yet. So in some ways, Labs is more up-to-date in their knowledge of new business than the business units are.

My question is about your overseas operations. Do you set up something like NEC X outside Japan headquarters, or should NEC X be in charge of finding new business opportunities in each country, since outside people wouldn't know the situation?

Regarding the idea of setting up DotData-like companies—does the lab say 'we have this interesting technology, what can you do with it?' Or does NEC X search for all these opportunities and tell us which ones you'd like to work with us on?

Going back to the question, my mission is to create option scenarios. Option A is the business waiting, let it be—you take it. Or Option B, which will be created by NEC X, is another option for NEC. Which is the best? In DotData's case, speed-wise and in terms of competitiveness, the executives decided to call it the outside business model. That's what I like to propose to NEC's executives. Also, the technology is based inside NEC—they don't know anything about the outside world, but they cannot make this happen without letting it go. So the actual project starts from no decision at all, but we get some approval to create some option scenarios first. Then we come back to NEC and determine which is the best scenario. I like to compete within NEC—that's the whole idea. What I'm saying is, I want to provide decision materials to the executives about which option is best.

Thank you. I see several hands—I saw your hand first, I think.

I don't see any Japanese large company making new startups in Silicon Valley. Maybe some, but I don't see many.

Recently, working with a lot of Japanese large corporations, they always set up offices in Silicon Valley looking for new technologies. Since NEC is very good at best technologies from research, don't you think it's much more efficient and speedy to do this type of outbound innovation through a Japanese domestic research commercialization scheme in Japan?

Good question. I'm going fishing—who else has a hand up?

I have two questions. First, I was very interested when you talked about the CTO's dual mission—disruptive technology versus the current business. Sometimes the CTO is the lord of great innovation and also of great stability. How do you balance those? Is it easy once you exploit—does it remain with the latest technologies, or is the existing system easy to maintain? Second question: you said the organizational structure is an internal ecosystem. An ecosystem is something where players are barely controlled. How do you make sure they have a presence? How do you incentivize them? With 900-plus Japanese companies already involved in AI for Z companies already in play, how do you make sure the startups are incentivized to work with NEC?

Okay, good.

Walter, SLAC National Lab. I have one question: what kind of financial arrangement with the outsider do you use in order to motivate a partnership with NEC?

We're getting close to the end of the session. I'd like to end with a slightly different question. A lot of what you're focusing on is artificial intelligence and IoT systems that are really hot topics in the news. How do you see the corporate sector moving forward to solve some of the problems with data protection and privacy protection? What do you think would be a good way for industry to move forward in this?

I think that's a really good note for us to end the formal session on. We have refreshments outside—please stay and meet our speakers. We've got several people visiting from NEC. Look forward to talking to everybody outside. Thank you so much.