Online Extra: A Creativity Lab for Taiwan

The Industrial Technology Research Institute thinks it has a way to turn the country into an innovator, rather than just an improver

Johnsee Lee wants Taiwanese to become more innovative. He's president of the Industrial Technology Research Institute (ITRI), a giant collection of labs in Hsinchu, Taiwan's high-tech hub, that receives support from the government and works closely with local companies to transfer technology.

Lee proudly points to statistics showing that Taiwan receives more U.S. patents than any foreign country except Japan and Germany. But he readily admits that the nation needs to do much more. "Most of the differentiation comes from the way we manage the business," says Lee. "We're able to use technology to catch up and enter new business opportunities. It's not driven by breakthrough technology."

The problem, he says, is that so much of the innovation has been focused on improving manufacturing and achieving what's known in Taiwan as "cost down," with original-design manufacturers lowering production costs to win orders from overseas customers.


  "Taiwan in the past was manufacturing-oriented," says Lee. Local electronics companies "were innovators, but most of the innovations were how to reduce cost," he adds. "Although Taiwan has been getting a large number of patents, if you look at the power of the patents, many of them are improvement patents or extensions of concepts. They're not technologies or ideas that can drive new business opportunities."

That wasn't an issue in the past, since the Taiwanese niche was to be the outsourcer of choice for the biggest companies in American info tech. But with both notebook and desktop PCs so mature that it's almost impossible to make any money from them unless your name is Dell (DELL ), Lee and many others in Taiwan's IT elite think things need to change.

"Recently, many of the companies in Taiwan have entered into the 'penny profits' age," says Lee. "The margin is very small, even though the business is there. If you don't have real differentiation, the value doesn't go up. If you can't lower the costs, then you better increase the value."


  So ITRI, the birthplace of technology powerhouses like Taiwan Semiconductor Manufacturing (TSM ) and United Microelectronics (UMC ), the world's top two chip foundries, is now trying to cultivate its softer side. Last year, it launched the Creativity Lab, a center designed to help companies come up with new ways of thinking about technology.

A key partner -- and a partial role model -- is the Media Lab at the Massachusetts Institute of Technology, the center that, as its Web site puts it, "provides a unique environment for exploring basic research and applications at the intersection of computation and the arts."

That's the sort of partnership the head of ITRI's Creativity Lab, Wen-jean Hsueh, is trying to foster in Taiwan. A PhD in mechanical engineering from Cal Tech, Hsueh now calls herself the "future producer" at the Creativity Lab, with the idea being that the center is like a Hollywood studio, and she's helping to greenlight new projects.

Hsueh recognizes the challenges she faces and the cultural obstacles she needs to overcome. "Taiwan has an industrial and manufacturing culture," she explains. "All of our problems are given by our customers. We have very good capability to come up with solutions, but how to define a problem is something that the industry is not very familiar with."


  The values that have helped build Taiwan into an IT workshop can get in the way of building a more innovative society, she says. "Children are expected to develop strengths in [engineering], as it is associated with greater job security. They get discouraged in other talents. But we do have other talents, and we need to find opportunities to use them. Instead of preaching to students, we need to let them be more creative. We need to demonstrate that creativity can foster economic value."

Given all the Snoopy dolls and other children's toys all around the Creativity Lab's main office in ITRI headquarters, it's no surprise that Hsueh says the theme she's trying to develop is playfulness. "We're trying to find out the fun and interesting part of everything we have dealt with before," she says. "For example, in a cell phone or in a remote control, how can we identify or come up with a playful ingredient that doesn't exist before and brings new value to the consumer."

Hsueh and her staff -- which includes not only engineers but also people with backgrounds in psychology, anthropology, and the arts -- want to find "the spirit of playfulness" in everyday gadgets.


  All this might seem a bit squishy. And sure enough, while Hsueh's center has gotten eight local companies to form a group (dubbed, of course, the Next consortium) to focus on how to develop new products, she admits that so far they don't have much to crow about.

For the moment, the center's work has been at the "conceptual stage," Hsueh says. "We help the companies to find good problems, to identify good problems, from global trends. At the conceptual stage, we come up with methodologies and processes to help industry identify good problems to solve." Give her and the Next consortium some time, she asks. "One or two years later, we would love to have a success case," she says.

It will be tough going. MIT doesn't exactly have a stellar record with trying to export its Media Lab to other countries. It tried to launch the Media Lab model in Asia in India a few years ago, through a much-publicized partnership with the Indian government. But that project fizzled.


  Moreover, Taiwan doesn't have much of a track record in developing new products, rather than figuring out ways to make existing goods better and cheaper. Still, ITRI's President Lee says Taiwan has some advantages. "It's full of small and midsize companies that are entrepreneurial, risk-taking, dynamic, and creative. Taiwan has a good manufacturing base to support the realization of ideas. Taiwan is a country that's familiar with both Western and Eastern culture, with modern capitalism and traditional Chinese culture."

With the pressure mounting as margins shrink, Lee is hoping that ITRI can take those ingredients and help Taiwanese come up with their next big act.

By Bruce Einhorn

    Before it's here, it's on the Bloomberg Terminal.