Asml Company's Success: Innovation Model and Organizational Structure

ASML is a Dutch company founded in 1984 as a joint venture between Advanced Semiconductor Materials International (ASM International) and Philips. From a wooden shed located behind Philips in Eindhoven, the new company launched their first lithography system – the PAS 2000 stepper. The following year the new venture had already outgrown the humble shed and relocated to a futuristic building in Veldhoven, where the headquarters still remain.

ASML creates systems for photolithography (also known as optical lithography or UV lithography). This is a process needed to create semiconductor chips. It uses light to transfer geometric patterns from a photomask (an opaque plate with holes or transparencies allowing light to shine through) to a light sensitive photoresist. Lithography systems allow these patterns to be printed on a minute scale so that they can form integrated circuits on a small surface rather than piecing together discrete components. As a result, these circuits can be produced faster, and more cost-effectively than before. Chips, or integrated circuits, have become indispensable and are used in most of our electronic devices today. Since their inception in 1958 integrated circuits (ICs) have greatly advanced, making devices such as mobile phones and laptops work faster by decreasing the size of the patterns printed by lithographic systems to fit more transistors on the same surface. Because of its growing importance in day-to-day life, ASML envisions “a world in which semiconductor technology is everywhere and helps to tackle society’s toughest challenges”. They aim to continue to decrease the size of integrated circuits to add value, cut costs and encourage the use of chips across industries such as healthcare, energy, mobility and entertainment.

Today, ASML is the world’s leading supplier of photolithography systems for the semiconductor industry reaching 85% market share in 2015. Since having only 100 employees in 1985, they now employ over 14, 000 people, more than 5, 000 of which are employed specifically in R&D. Their R&D and manufacturing facilities are now spread across the Netherlands, Asia and the United States. In 2018 ASML ranked 75th on Forbes’ “world’s most innovative companies” list, the firm believes that its multidisciplinary and culturally diverse teams are the key to innovation and creativity within the firm.

A Solid Foundation

Starting as a joint venture with Philips, ASML had all the right ingredients to become a successful innovator. Philips is a Dutch company founded in 1891 with the goal of bringing affordable and reliable lighting to everyone who needed it. Since their inception over a century ago, they have continuously championed innovation to improve people’s everyday lives. Over the years, Philips have diversified their product range so radically that they manage several separate entities without, however, compromising or diluting the innovative spirit at the heart of the company. Philips has grown to become one of the world’s biggest conglomerates. The company owes its success to its ability to link innovation to the consumer, and to its continuous investment in research and development. R&D investment has remained an important part of both companies’ innovation strategies, ASML spent €1. 2 billion on R&D in 2017 alone while Philips spent €1. 76 billion in the same year.

Culture for Innovation

ASML started as a tight knit family of 31 employees. When brick phones and rigid business structures ruled, this team was not afraid to break the mould. Within their first years of existence, the team followed unorthodox, creative practices that led to what they refer to as the “wild years”. One of the original employees proudly remembers his colleague resting his ear to a screw to get the right frequency; colleagues admired each other’s creativity and interacted much like a family. Everyone knew each other, and everyone was there for one another.

Although the ASML team is much bigger nowadays it is still a passion for technology that binds employees. Being the largest lithography system provider in the world gives employees the drive and pride to keep innovating to improve our daily devices. The underlying motive for the industry outside of the company alone is a paradigm introduced by Intel co-founder, Gordon Moore. He first observed that the number of components on integrated circuits was doubling every year, he later adapted this to doubling every 2 years. This phenomenon, now recognised by the industry as Moore’s Law, helps drive strategy and set common goals to advance technology and society as a whole.

Another integral part of ASML’s innovation culture is diversity. Within 5 years, the company expanded overseas to the United States and Asia. Not only did this bring them closer to customers but they also started to attract global talent to enrich knowledge and creativity. Today ASML describes itself as a melting pot of multidisciplinary and culturally diverse staff that works together to form creative and relevant solutions. Even the smaller teams with up to six people have a wide range of nationalities to stimulate employees and encourage continuous learning across cultures and functions. The consensus among employees is that it is an inspiring and challenging work environment as you witness some of the industries smartest people working on life-changing solutions. Although most employees agree that the people make the company a rich, diverse and friendly environment, there is a common feeling from foreign employees that management is still very Eurocentric.

Organisational Structure

ASML has three main business lines; Deep Ultraviolet (DUV) scanners, Extreme Ultraviolet (EUV) scanners, and applications. All three lines are supported by research and development, sales, operations and sourcing.

Like many start-ups, the company’s first years were chaotic and unstructured with undefined roles and open communication. This disorder and family-like structure was similar to that of W. L. Gore’s with no hierarchy, intermediaries or fixed roles which led to greater creativity in problem solving. Unlike Gore however, ASML had a clear core business in lithography systems and outsourced everything that was not part of this core to meet deadlines. The flat hierarchy and short lines of communication were vital in ASML’s race to launch a competitive product but the then CEO, Gjalt Smit, emphasised that it was time to somewhat control the chaos. When the company moved to a bigger building it was easier to handle administration and split the workforce into teams. Despite this increase in authority, the organisation stayed relatively flat with Smit at the top followed by managers leading flexible teams. Former project manager, Richard George, remained surprised by the level of freedom and discretion given by top management. To this day managers are given broad tasks with a deadline and can subsequently decide themselves how to realise the task. The role of top management is to enable managers to complete the task thus providing any funds and human capital required by the project leaders. Similarly to other innovative firms like Google, giving employees freedom and trust requires a lengthy recruitment process. ASML has several components to its application process starting with a CV that displays high proficiency and experience in technical fields such as engineering. Once your CV is scanned, the applicant may be invited to do an assessment to further test their technical proficiency. If this test is passed, the applicant is invited for an interview. Given that ASML encourages multidisciplinary teams, it is likely that the applicant will be asked to be interviewed by several stakeholders to ensure only well-rounded candidates with the right personality fit are hired.

The advantage to this tedious application is that top management can trust employees to be motivated and work effectively in teams without the need for continuous supervision. This allows the company to maintain a flat, broad structure as the CEO doesn’t have to micromanage teams. Simultaneously, employees feel more empowered and are more intrinsically motivated to perform tasks as they work in teams of highly skilled professionals and have the trust needed to share creative ideas without being questioned by top management.

The CEOs

ASML’s first appointed CEO was Gjalt Smit, a visionary with a lot of enthusiasm but a lack of technical knowledge. Because of this shortcoming and the many hurdles the new venture had to overcome, Smit realised his best option was to adopt the role of a coach, allowing his expert team to determine the success of the company while bringing them together to encourage wild ideas. The aim was to create a business environment unlike any other in Europe at the time; inspired by Silicon Valley, Smit wanted to encourage risk-taking at all times by fostering an environment of trust, independence and inclusivity. To instil this culture, he introduced daily “morning prayers”, or progress reviews and bi-weekly “tea concerts” where all employees meet up and one presents developments in their field. He also introduced a compulsory training for new employees lasting two weeks to make sure they adapted to the culture when the company grew very quickly. Some even refer to Smit as the Steve Jobs of ASML for his ability to foster creativity and lead the company with a clear strategy. However, similarly to Steve Jobs he was also known to have quite an unlikeable character.

Since Smit, the company has grown massively, with that comes the difficulty of balancing creativity and control. Despite this, the CEOs’ role at ASML throughout the years has largely remained the same. Current CEO, Peter Wennink, continues to facilitate communication rather than assign specific tasks and makes an effort to change the inherently negative perception of risk throughout the European business landscape. With over a third of ASML’s staff consisting of engineers they are undeniably at the core of the company’s success, however, Wennink admits that they cannot be given full autonomy as before as they can short-sighted and naïve in terms of business strategy. Thus, he ensures that the company remains focussed on the bigger goal of keeping Moore’s law alive by relentlessly innovating to reduce the chip size.

Efficiency vs. Innovation

In many companies, the trade-off between efficiency and innovation leads to difficult decisions in top management and ultimately requires compromise. At ASML however, it is precisely efficiency that drives innovation. Each year ASML puts aside a budget of one billion euros to invest in R&D with the goal of developing the smallest, most efficient and cost-effective chip-making machine. Although the chip industry is highly volatile and subject to cyclical downturns, ASML consistently stores excess cash to ensure maximum efficiency and avoid obsolescence regardless of financial performance. This is part of Wennink’s strategy to keep Moore’s Law going even when Intel themselves begin to doubt it’s future viability. Despite efficiency pushing innovation at ASML, companies like 3M have proved that striving for maximum efficiency is not always the best course of action. They reminded businesses that invention is disorderly by nature and cannot simply be scheduled into an employee’s work shift. For this reason, ASML separates its R&D from other functions to enable both efficient processes and a creative environment that tolerates failure.

In spite of Wennink’s clear strategy and significant investment to keep Moore’s Law alive, his persistent focus could lead to the company’s ultimate downfall. Many big players in the chip industry are starting to give up on the paradigm; companies like IBM have already started investing in alternatives that could render the silicon microchip obsolete. ASML’s relentless pursuit of Moore’s Law may leave them blind-sighted if such alternatives take over.

Blurring Boundaries

One way in which ASML mitigates this risk is through its open innovation model. This involves creating an ecosystem in which the company can collaborate with suppliers, customers and partners to share knowledge, build trust and manage self-interest. Through this model, ASML can share the risks and rewards throughout the supply chain. By innovating alongside customers, the company is able to make relevant improvements at the same pace as customers so that innovations can be immediately and seamlessly implemented. To formalise this program and drive collaboration, ASML’s main customers are also major investors. Intel, TSMC and Samsung together own over 20% of ASML shares and thus take significant interest in the company’s success. In some ways the ecosystem resulting from the unclear boundaries between participants can be defined as the organisation rather than ASML alone. All parties involved collaborate and share knowledge across boundaries to pursue the common goal of improving everyday devices across industries. Co-innovating with main customers by definition leads to demand-driven innovation. The ventures in which ASML chooses to invest in are thus likely to be closely linked to the core and in turn have a higher chance of success with the support and experience of the company and its main collaborators.

Managing Business Units

ASML’s growth strategy largely consists of setting up wholly owned subsidiaries and mergers and acquisitions. Since the company’s first decade of existence it has continuously invested in setting up international subsidiaries spanning from the US to Asia to provide faster technical support to clients as well as diverse R&D centres. By creating an international environment in both the Dutch headquarters and foreign subsidiaries, the company creates a flexible and responsive workforce facing minimal issues in dealing with cultural distance. ASML purposely cultivates a strong culture of openness that allows employees to adapt across countries and industries and instils this culture across its subsidiaries so as not to dilute it. The company’s close collaboration with international companies, such as Samsung and Intel, further exposes employees to a wide range of cultures, facilitating international expansion.

The long history of mergers, acquisitions and strategic alliances also sets ASML up for international success. They are selective in their investment choices, making sure that the partnering company always has a strong strategic fit or integrates well in ASML’s supply chain. For example, their acquisition of Silicon Valley Group in 2000 encompasses ASML’s creative spirit giving the multinational the agility of a start-up with the infrastructure of a large corporation. The companies’ activities have little overlap thus minimising the problem of transferring staff while still sharing similar cultures. Through ASML’s numerous acquisitions from Zeiss to Brion, Cymer and most recently Hermes Microvision, the company has created a repeatable formula for expansion that increases speed and reduces complexity. Throughout expansion top-management has always maintained the role of coach to provide guidance and direction while focusing on resource allocation to create synergy between business units.

From its innovative routes in Philips and ASM international, ASML fostered a strong culture of collaboration and knowledge sharing. Its strong transformational leaders have sustained this culture throughout the years and translated it to its subsidiaries and partners. From the beginning management has supported and allocated resources to experimentation and tolerated failures even when capital was not as abundant as today; sales executive, Sunny Stalnaker, recalls the company was always one mistake away from bankruptcy. ASML shows many other traits now connotated with innovation such as a flat hierarchy, diversity and ambiguous boundaries. What has really strengthened the company’s innovation however is their ability to put aside capital every year so that they can fund the wild ideas while keeping shareholders satisfied.

From their successes and failures, ASML has been able to find a balance between chaos and control and create a repeatable formula for expansion. The company has chosen easier growth strategies by expanding into new geographies and extending the range of products and services. With these growth strategies they can use their experience and leverage diversity. This process has been aided by the company’s culture which adapts quickly and, similarly to Apple, shares a common passion for technology and pushing its possibilities to the limit.