In the midst of a worse than expected economic downturn, Italy suddenly discovered that one of its companies had reached the status of worldwide excellence. Fiat Group Automobiles Spa (Fiat), the well-known Italian carmaker, was able to weather the economic storm and astounded the world with its expansion plans and its partnership with Chrysler during such a climate. President Obama and his auto industry task force claimed on March 30th, 2009 “Chrysler’s best hope for revival lies in a proposed partnership with Italy’s Fiat Spa”. Although the future prospects of Chrysler were still far from clear at the time, the reputation that Fiat has gained on an international level. What is remarkable to note here is that Fiat was not appointed by President Obama as Chrysler’s ideal partner because of its abundant cash flows or the cost-efficiency of its production system. One of the main driving factors behind the deal was the superiority of the Italian carmaker’s clean, fuel-efficient engine technologies. As Mr. Obama stated on April 30th “Fiat has demonstrated that it can build the clean, fuel-efficient cars that are the future of the industry, and as part of this agreement, Fiat has already agreed to transfer billions of dollars in cutting-edge technologies to Chrysler to help them do the same. Fiat is also committed to working with Chrysler to build new fuel-efficient cars and engines right here in America”. These technologies, which lay at the very heart of the Fiat-Chrysler deal, were mostly developed during the 90s by Centro Ricerche Fiat (CRF), the Fiat Group company in charge of R&D and technology development, under the visionary leadership of Gian Carlo Michellone, CRF’s CEO from 1989 to 2005. Mr. Michellone radically turned around CRF’s organization and innovation strategy in the early 1990s when the Italian carmaker - along with many other players in the automotive industry - was going through troubling times. This revolution allowed the Fiat Group to keep its “innovation engine” running despite the heavy downturn in the industry and to: (a) maintain and reinforce its in-house R&D activities (b) build and enlarge its networking capabilities within the automotive sector and across different industries and (c) complete and advance the development of the above mentioned fuel-efficient engine technologies. This presentation focuses on the organization and innovation strategy devised by Gian Carlo Michellone for CRF during the 1990s, which resembled and anticipated most of the underpinnings of what would become known as the Open Innovation paradigm that originated from Henry Chesbrough’s work. The CRF case is interesting because it demonstrates how Open Innovation can provide a strategic approach that enables a firm to protect its innovation capabilities from the risk of severe resource rationalizations during periods of crisis, and to confer a starting point to replicate them once the downturn is over.

1. FIAT – Open Innovation in a
Downturn (1993-2003)
A Behind the Scenes View
Strategy & Operations
Alberto Di Minin
Istituto di Management
Scuola Superiore Sant’Anna – Pisa (Italy)
www.diminin.it
Federico Frattini
Dip. Ingegneria Gestionale
Politecnico di Milano - Italy
Andrea Piccaluga
Istituto di Management
Scuola Superiore Sant’Anna – Pisa (Italy)
This presentation is based on:
Di Minin, A., Frattini, F., & Piccaluga, A. 2010. Fiat: Open Innovation in a
Downturn (1993-2003). California Management Review, 52(3): 132-159.
http://www.jstor.org/stable/10.1525/cmr.2010.52.3.132

2. Organization of this presentation
• Why this case?
• Methodology: illustrative case study
• Research question: how do strategy and operation
co-evolve during the journey from Closed to Open
innovation?
• Situating the case:
Open Innovation in a Downturn
• The Open Innovation model applied
– A different look at appropriability of innovation
– R&D project management
– Open innovation in a downturn
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3. Three persons behind this story
“the international company Fiat is the
only route to survival for Chrysler.”
March 30th 2009
“Fiat has demonstrated that it can build
the clean, fuel efficient cars that are the
future of the industry, and as part of this
agreement, Fiat has already agreed to
transfer billions of dollars in cutting-edge
technologies to Chrysler to help them do
the same. Fiat is also committed to
working with Chrysler to build new fuel-
efficient cars and engines right here in
America.”
April 30th 2009
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4. Three persons behind this story
“Only six automakers
will see the end of the worldwide
financial downturn. The only way
for companies to survive is if they
make more than 5.5 million cars
per year”.
December 2008
(Fiat is approx 2 million cars..)
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5. Three persons behind this story
“I finally know how
to call the model I have been using
in all these years at CRF!”
Berkeley, 2005 in a conversation
with Henry Chesbrough
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6. Methodology based on great access to
primary sources (1993-2003)
1989-1994: Preparing for
the perfect storm.
• 1994: Corporate R&D
down 70%
• hunting for external
clients
• pricing innovation
Source: CRF Internal presentation,1993
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7. FIAT – Open Innovation in a Downturn
(1993-2003)
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8. CRF’s revenues from outside
the Fiat Group
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9. Does it look familiar?
Source: CRF Internal presentation,2003
• Defensive goal: find a way
to maintain FIAT’s technology
base, in a time of shrinking
budgets
• Ideas that we can trace back
to Open Innovation central to
this strategy
• From corporate strategy to
operations.. Let’s see how.
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10. A new level of Appropriability
For transferring competitiveness
• Strategy:
– CRF new mission “instead of simply selling research, CRF is
dedicated to providing competitiveness to its customers as a matter
of principle”
– Learning about Marketing of Technology
 Select the "right" projects to transfer
 Select the "right" clients.. To turn them into long term partners
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11. Selecting the “right”
customer to work with
• Turn customers into
long-term partners
Customer R&D expend. with CRF /
• Informal relationship
Total CRF R&D expendi. preferred to market
research
• Researchers with a
briefcase
Customer R&D expend. with CRF /
Tot. customer R&D expend.
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12. A new level of Appropriability
For transferring competitiveness
• Strategy:
– CRF new mission “instead of simply selling research, CRF is
dedicated to providing competitiveness to its customers as a matter
of principle”
– Learning about Marketing of Technology
 Select the "right" projects to transfer
 Select the "right" clients.. To turn them into long term partners
• Operations:
– A matrix structure and Research Promotion Function
– HR central to manage competences and high turnover
– R&D Project portfolio management: cool&risky ideas + plug&play
– The concept of “micro-clients”
– Intellectual property management (the Bosch case)
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13. Selecting the “right”
technology to be transferred is easier said than done
• Strategy: CRF interpretation of Hamel and
Prahalad (1994) –distinctive, standard, actual.
• Execution: The case of Bosch:
“Fiat lost out on billions in potential revenue by
selling the technology”
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14. A different perspective on R&D projects
• Strategy:
– Clients might not know what they want/ how to price it
– Marketing of technology related to competitiveness:
C.C.C.P. (Competitiveness for Customers at Competitive
Prices)
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15. Levitt’s 4 Levels: imagine having friends
over for dinner
The shopping list
The cooked meat
The main course;
sides and wine
A nice dinner
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16. A different perspective on R&D projects
• Strategy:
– Clients might not know what they want/ how to price it
– Marketing of technology related to competitiveness:
C.C.C.P. (Competitiveness for Customers at Competitive
Prices)
• Operations:
– Bottom up planning and evaluation. Microfoundation of
project management.The Project/output sheets
– A new type of lab employee: Researchers, Project
managers, Marketers
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17. Open Innovation in a Downturn
• Strategy:
– A clear/extreme mandate
– It takes time to implement
– Entrepreneurial spirit
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18. Open Innovation in a Downturn
• Strategy:
– A clear/extreme mandate
– It takes time to implement
– Entrepreneurial spirit
• Operations:
– Leadership and commitment
– Creative resource management (EU, clients)
– Pressures on the organization and stress levels
– Central role of planning: know what you transfer
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19. The role of EU Projects
• From €2 million in 1992 to €20 million in 2000
• Organizational and strategic advantages:
– Training
– Free benchmark exercises
– Network of relationships
K€
European carmakers’ participation in the
EU EUCAR V Framework Programme 19

20. Concluding Remarks:
Relevance for Operations
• The role of the Open Innovation Champion:
– Senior executive leadership critical to open up the innovation
process
– What happens next?
• Business model alignment
– Transferring competitiveness to external (and internal) customers
– Can we transfer competitiveness to competitors?
– The process starts (and sometimes ends..) with individual
researchers
• The relevance of organization
– A complex transition: (HRM, IP, project management…)
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21. Concluding Remarks:
Relevance for Strategic Planning
• Open Innovation as a bifocal strategy during tough times
– OI as a response to shortermism in difficult times?
– OI to both strengthen operational efficiency AND enhance R&D
effectiveness?
• Tough times require tough leadership and anticipation
– External circumstances are triggers of change
– ..but change that has been anticipated and with someone to direct change
– The wake up call can arrive too late
– What is the trigger of OI? goldmine? Fire? Both?
• Micro-tuning and adaptation for macro-change
– Planning and implementing OI starts from people and projects..
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22. Thank You for Your Attention
Alberto Di Minin
www.diminin.it
..& if you liked this presentation you might
enjoy reading the paper as well!
Di Minin, A., Frattini, F., & Piccaluga, A. 2010. Fiat: Open
Innovation in a Downturn (1993-2003). California
Management Review, 52(3): 132-159.
http://www.jstor.org/stable/10.1525/cmr.2010.52.3.132
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