Case study: Arm’s ‘connected community’

The story
Arm Holdings is a leading supplier of semiconductor intellectual property, designing and developing digital electronic products. Based in Cambridge, UK, it was started as a joint project between Acorn and Apple Computer, and since 1990 it has grown from a dozen people to more than 2,100, with a market capitalisation of about £7.8bn.

The challenge
In a sector that undergoes extremely rapid technological development, Robin Saxby and his fellow co-founders recognised that a small, new entrant such as Arm would not be able to compete by following the established model of manufacturing whole IT systems.

They decided to focus on Arm’s strength – designing microprocessors – and to position Arm as a critical enabler working in partnership with other companies: it would be central to an “ecosystem” of IT design and manufacture.

To make this happen, Arm would have to develop both a business model and a workplace culture that would be based on collaboration, whether internally between colleagues or externally with other organisations.

The response
The founders developed a “Connected Community of Partners”, the “ecosystem” that includes its customers and their customers, as well as suppliers and even rivals. The vision was to cement Arm’s position in the value chain by facilitating all stakeholders in Arm’s sector to collaborate in developing and using microprocessors.

How the community works
The Connected Community facilitates networking and collaboration among organisations whose activities are relevant in some way to those of Arm.

It may even introduce a client to potential rivals if they can help Arm’s client faster than Arm could. For instance, Arm sometimes provides client manufacturers with predictive models that simulate the performance and power consumption of specific microprocessors. However, there are smaller outfits that specialise in this and can respond more quickly, in which case Arm may refer the client to the smaller outfit if this enables the product’s launch to meet a deadline.

Equally, Arm tries to ensure its activities support the success of partner organisations, in order to maintain the health of the broader ecosystem. The underlying principle is that Arm’s IP royalties will generate increased profits over the long term by remaining part of an increasingly valuable sector.

For example, as a supplier to the still nascent tablet computer segment, Arm is supplying a range of manufacturers to help them establish themselves and to expand the market overall.

These levels of collaboration require a new approach among employees. They must all buy into the idea that “Arm is bigger than any individual, and the ecosystem is bigger than Arm”, as Bill Parsons, head of HR, puts it.

The founders encouraged a collaborative culture among employees from the outset. But as the workforce grew, Arm needed an HR system that formalised this. Recruits are selected partly for ability to collaborate. Once they join, values such as teamwork, selflessness and partnership are incorporated into training. Employees are assessed for these values twice a year and this has a direct impact on their progress, base pay increases, bonus and equity in Arm.

The employee share-ownership scheme also emphasises group success, by offering Silicon Valley levels of shares in the company’s equity, rather than the more modest levels usual in Europe.

The Connected Community comprises a network of about 1,000 companies. Through social media and conferences, it has progressed to connecting individuals across organisations and creating a series of virtual communities. However, these remain Arm-related.

The lessons
A long-term strategy based on collaboration that benefits everyone can pay dividends for IP businesses. This depends on having the right organisational culture, which must be continually reinforced. An innovative, progressive approach will succeed only if the workforce buys into it.
- Financial Times, 23 Jan 2012