Gone ... Or Not?

By Keith McDowell

“The Greatest Generation” left us with more than victory in World War II and the passing of the Great Depression. They created an era of prosperity and the advent of a large middle class. Even more, they brought us an era founded on innovation driven by corporate research laboratories such as Bell Labs, RCA Labs, Xerox PARC and many others. And they built a nationwide infrastructure of national laboratories and the world’s greatest research universities, all working together to make America the leader of the World.

But as we enter the second decade of the twenty-first century, many question the American model and whether it is relevant and sufficiently adaptive to the new global competition and Friedman’s mantra of “the world is flat.” President Obama in his speech to the National Academy of Sciences on 27 April 2009 best captured the spirit and mood permeating the past decade. It is worth repeating his comments:

A half century ago, this nation made a commitment to lead the world in scientific and technological innovation; to invest in education, in research, in engineering; to set a goal of reaching space and engaging every citizen in that historic mission.  That was the high water mark of America's investment in research and development.  And since then our investments have steadily declined as a share of our national income.  As a result, other countries are now beginning to pull ahead in the pursuit of this generation's great discoveries.  

I believe it is not in our character, the American character, to follow.  It's our character to lead.  And it is time for us to lead once again.  So I'm here today to set this goal:  We will devote more than 3 percent of our GDP to research and development.  We will not just meet, but we will exceed the level achieved at the height of the space race, through policies that invest in basic and applied research, create new incentives for private innovation, promote breakthroughs in energy and medicine, and improve education in math and science. 

Few would disagree with his analysis or fail to support his promise of devoting 3 percent of GDP to research and development. It’s the heart, soul, and core of any long-term innovation strategy. But do we have the R&D capacity to absorb and effectively spend such an investment, especially in the industrial sector? Indeed, many believe that the industrial R&D laboratories such as Bell Labs are “missing in action” and a creature of the twentieth century.

In the cover letter of 20 November 2008 to President Bush for the PCAST report entitled University-Private Sector Research Partnerships in the Innovation Ecosystem, the second paragraph states that “Additionally, we have observed a decrease in the number and size of industrial basic research laboratories.” That’s the prevailing view of America’s science leadership!

On the business side, Adrian Slywotsky in a Business Week article of 27 August 2009 entitled Where Have You Gone, Bell Labs? states that “Our growth engine has run out of a key source of fuel – critical mass, basic scientific research.” As his title suggests, he is referring specifically to the putative demise of industrial basic research laboratories. But he offers a solution and one that I agree with: “Today’s challenges require the government to unleash a series of highly focused, aggressively managed projects supported by a growing research investment in a dozen or more leading companies that in the aggregate reproduce the cumulative impact of Bell Labs, RCA Labs, Xerox PARC, and others.”  He further argues that “We need them. Soon.” 

Notwithstanding the demise of Bell Labs as an innovative force, this begs the question of whether American industry is truly reducing its commitment to R&D, especially basic research. Is America experiencing “a decrease in the number and size of industrial basic research laboratories?” So far, I’ve been unable to find a source of hard data that validates this claim, other than anecdotal stories. For example, the Center for History of Physics of the American Institute of Physics undertook in 2003 “a five-year study of the history of physicists in industry” and reported results in the July 2009 issue of Physics Today in a story by R. J. Anderson and O. R. Butler entitled Industrial R&D in Transition. While the results are skewed toward industries in which physicists play major roles, they are nonetheless informative. Here is a short version of the findings related to industrial research:

• Management is “Struggling to find the best mix of longer-term research and short-term development.”
• Radical R&D funding and organizational changes are endangering centralized labs.
• Management is looking to “external sources … for innovative technology” following successes in the Asian or early Japanese model.
• There are no standards for preservation of records and America is losing precious “know how.”

Confirming the notion that industrial basic research is declining, the Physics Today article states that “interviewees at all the laboratories we visited described a sharp transition over the past two decades toward shorter-term projects and more control by the business side of operations.” 

In a similar vein Marguerite Reardon in a CNET news article describing industrial research laboratories such as AT&T’s Bell Laboratories, Xerox’s Palo Alto Research Center (PARC), and IBM’s Watson Research Center stated that “The labs are still around, but some experts say the labs conduct basic research on a much smaller scale than they used to.”

The message from conventional wisdom is clear and consistent. There is a decline underway for industrial basic research laboratories. But lacking hard data for the number, size, description and funding of industrial basic research laboratories, are we merely looking at a phenomenon associated with the physical sciences, the domain of the twentieth century giants, or does it cross all sectors of science and technology?

I decided to examine the question on the basis of industry basic research expenditures relative to the GDP of the United States. Using the yearly industry basic research expenditure data available from the NSF S&E Indicators report and taking fourth quarter GDP data available at the website forecasts.org/data/data/GDP.htm, I computed the percentage of the yearly industry basic research expenditure to the fourth quarter annual GDP (for example, the fourth quarter of 1953 would be dated as 1954-01-01 in the GDP table). Each annual percentage was then compared to the 1953 percentage such that a value of 1.00 represents an industry basic research expenditure percentage against GDP equivalent to that of 1953. The resulting curve is given in the following plot.

As we can see from the plot, industry expenditures on basic research as a percentage of GDP have moved around over time and become somewhat erratic over the past decade. We don’t see a recent pattern of less money being spent on basic research as a percentage of GDP. Instead, the ratios are commensurate with the previous highs. These data do not indicate the decrease that might be expected from the letter to President Bush or the conventional wisdom. Of course, this doesn’t tell us whether there are fewer or more industrial basic research laboratories. Is conventional wisdom being driven by a maturation of the tradition physics-based laboratories? Or do the traditional laboratories need a new beginning? Perhaps the “lablets” model advocated by Slywotsky and others including the author is the way to go.

“The Times They Are A Changin’,” as Bob Dylan prophesied. And the changes augur well for industrial basic research. Witness the recent endeavors by Google in the arena of wind power and their investment of $100 million in the world’s largest wind farm. As Katie Fehrenbacher says in her article, Google Invests $100M in (Another!) Wind Farm, “Google has put more than $350 million (a jaw-dropping amount for an Internet company) into clean power.” Maybe the Cassandra’s of conventional wisdom are looking in the wrong places.

Stable, Flat and Small!

By Keith McDowell

Academe versus industry! What is it that keeps universities and industry from working together in a more connected manner to accelerate innovation? Is it really a war between cultures as some would have it, or a simple misalignment of cultures? Do feckless academics believe the world owes them a free ride paid for by tax dollars to pursue whatever research or scholarly activity they desire independent of the needs of society? Or do heartless and myopic business persons see the bottom line and the near term as the only discriminators for doing business – so-called efficient capitalism? Have “bashing” and “trash talk” about the cultural misalignment become an American sport to the detriment of all of us?  Or is the perception of a disconnect mere urban myth?

No one doubts that there are very real differences in the mission spaces and cultures of academe and industry or that they lead to a gap in translating discoveries into inventions and ultimately “products” that are commercialized and deployed. The differences are not just definitional in the sense of basic research versus applied research versus development, but arise from the functional requirements of the innovation ecosystem for different mission spaces. But implementation of the functional requirements has led to a gap with a capital G. It is THE Gap to accelerating innovation in America! Do we as a society have any hope of bridging the Gap?

Before we address this question, let’s review some basic facts.

An essential element of the mission of universities is that students have access, exposure and experience in acquiring and learning about STEM knowledge and its generation through research, whether basic or applied, curiosity inspired or use driven. All agree that the American STEM workforce of the 21^st century demands it. It’s the raison d’etre for universities. Furthermore, basic research is absolutely essential to maintaining a dominant innovation ecosystem. Quoting from Measuring the Moment:  Innovation, National Security, and Economic Competitiveness, a November 2006 report from The Task Force on the Future of American Innovation:

Basic research is the prerequisite of applied research and development. It is conducted in an effort to achieve fundamental knowledge that frequently yields specific applications, including significant technological or health advances, or even whole new industries. Its results can be unpredictable, but as former House Speaker Newt Gingrich has written, “many of the really big changes that will transform our lives will come from unpredictable [research] breakthroughs.”

It makes perfect sense that the confluence of educating the workforce of the 21^st century and basic research is housed in our universities. It would be stupid to change that fundamental structure. It doesn’t make sense for universities to change their mission space and to function as companies. It doesn’t mean, however, that universities cannot adapt and restructure in some measure to better bridge the Gap.

The report Measuring the Moment also asks the question “Why doesn’t industry fund more basic research?” Their answer provides an industry perspective for the Gap:

… The reason is that it is considerably easier for nations to capture the benefit of their investments in basic research than it is for companies. Basic research is unpredictable, and turning such research into a marketable product can take a decade or longer. Financial markets and international competition make it hard for companies to invest in research that does not show quick results. …

An even more important question is to what extent does industry fund research at universities? The following table provides the essential data.

Table: Industry Sponsored University R&D Expenditures

Fiscal Year	Amount (in millions)a	Percentageb
1956	29	7.8%
1966	42	2.4%
1976	123	3.3%
1986	700	6.4%
1996	1,605	7.0%
2006	2,428	5.1%

SOURCE:  National Science Foundation/Division of Science Resources Statistics, Survey of Research and Development Expenditures at Universities and Colleges

^a Not adjusted for inflation

^b Percentage of total university R&D expenditures

What does the industrial funding data tell us? It shows over several decades that the percent of funding at universities from industry has remained mostly “stable, flat and small” at about 5%, give or take a percentage point or two. Stable, flat, and small! Is there no way to change this dynamic in support of bridging the Gap? I would argue that significantly changing the mission spaces of academe or industry is not the answer, nor advisable. We need both in the innovation ecosystem.

The good news is that there are change agents, factors and forces at work which hold promise in bridging the gap. But they must be understood and properly directed. Here is my favorite list.

Convergence: Since the 1990s a growing consensus has emerged that R&D founded on discipline specific studies of isolated, specially prepared systems has mostly been tapped out, except for the continuing work in particle physics. In some sense, the “easy” science has been done. At the frontier, multi-disciplinary and even trans-disciplinary research on systems of systems or network science is the order of the day. “Convergence” is the title given to this phenomenon. One result of the convergence phenomenon is the increase in the complexity index of research and innovations. Kurzweil argues that it will lead to a “singularity” sometime in the middle of the 21^st century, such as the emergence of a self-aware computer. Whatever the case may be, the enhanced clustering and connectivity driven by convergence are positive forces that could be usefully directed to bridge the Gap.

Emergence of University Start-up Formation: There is some evidence that industry and universities are expanding their connectivity, although mostly driven by start-up companies, and not mature industry. Unfortunately, the evidence with respect to startups is mostly anecdotal. However, Fred Block and Matthew R. Keller in an excellent 2008 paper describe the transformation in the demographics of R&D 100 Awards starting from 1970 when large firms dominated. They find today that “large firms acting on their own account for a much smaller share of award-winning innovations while innovations stemming from collaborations with spin-offs from universities and federal laboratories make up a much larger share.”

Enhanced IT R&D Infrastructure: The need for connectivity and strong overlap is very apparent in the information technology sector. Here the combined factors of fast market turnover of products and the integrated nature of products drive the market. The slow patent process and the use of many patents per product nearly obviates the concept of patents. Indeed, the very notion of a linear discovery-to-product pipeline tends to smear out into an integrated cluster of connected innovations. For this sector universities and the IT industry need to function as a single entity to achieve success in the commercial marketplace. Recognition of that fact is a step forward and is being actively pursued by universities.

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Public-Private Partnerships: The President’s Council of Advisors on Science and Technology (PCAST) promotes public-private partnerships as a key mechanism to bridge the Gap. With a focus on the university-industry interface, PCAST notes in the report University Private Sector Research Partnerships in the Innovation Ecosystem that the “accelerating speed of technological development requires new methods of knowledge exchange between universities and industry so as to capture the societal and economic benefits of these innovations.”  PCAST further notes that “there is no ‘one-size-fits-all’ approach for creating a successful research partnership.”  Unfortunately, PCAST does not provide an actionable plan, but bringing awareness of their solution to the forefront is a major step forward.

Emergence of University Innovation Centers: With the slow demise of industry R&D labs that have a long-term focus and the continuing presence of the Gap, universities are beginning to enter this space through “innovation” or “proof-of-concept” centers. These are centers where university IP is enhanced through R&D sponsored by both external and internal funds. Such centers are discussed in Batteries Not Included.

Growth of Research Parks: The number of research parks in America is increasing along with their quality. Witness the growth of the Texas Research Park in San Antonio and the creation of the Science for Life park in Houston. While the definition of what constitutes a university research park is somewhat murky, their existence is a clear indicator of a regional innovation ecosystem and engagement of a university in a commercialization system.   They embody the concepts of co-laboratories and co-location among the entities that make up the innovation enterprise.

National Laboratories as bridging partners: National labs have built up a culture spanning basic research to deployment. They know how to bridge the Gap and we must use that capability and include them in public-private partnerships. The “lablets” model of the U.S. Department of Energy is a step in this direction.

Academe versus industry! It is not a problem to be solved by rearranging the deck chairs, a war between intransigent cultures, or a game played for political advantage. It is a strength of our innovation ecosystem, but one in need of improvements through bridging of the Gap. Surprising perhaps to some, such changes are already underway driven in part by the agents, factors, and forces that I’ve listed. But random progress is not enough. We need to marshal our best minds and leaders from academe, business, and government to change the dynamic of stable, flat, and small!

Life is Tough for Innovators in the Academy

By Keith McDowell

Acceleration! It’s what we all want when we push the accelerator pedal in our car. But is that what we get? Ask Toyota owners. Maybe the pedal sticks on the carpet pad causing out-of-control acceleration or the electronic control system malfunctions. Or perhaps those who purchase a Toyota inherently can’t tell the difference between the accelerator and the brake pedal. It’s in their genes.

And then there is the old issue of what some call “pick up” – the ability of the car to accelerate rapidly. Of course, a Lamborghini not only has that but other desirable “pick up” features as well, if you know what I mean. Electric cars and hybrids are perceived to be hound dogs in the “pick up” game and they’re not even cheap. So what does it take to build a high performance car?

Only a fool would believe that the accelerator system, electronic or not, is the key component of such a car. It’s not just one system, but the entire car and every one of its components, all functioning as a finely tuned instrument, which produces results. And to build such a car, attention must be paid to all the components and their interplay.

So, what happens when President Obama, or Congress, or a Governor, or anyone else pushes down on the innovation accelerator pedal? Do we see rapid acceleration or do we have a hound dog – no offense meant to that fine canine breed? That question in many forms is being asked every day across a wide spectrum of American leadership. And at the core is the innovation engine – the American university, or more specifically, research faculty members.

Some argue that innovation is only about adding commercial value to “intellectual property.” Research faculty members don’t count as part of the innovation equation in their thinking. Hmm, sounds like those folks are hung up on the Toyota acceleration problem and don’t understand the concept of a high performance car. I respect the need to engage in debate about the meaning and definition of innovation, even if only a rhetorical or academic exercise. But building a high performance innovation ecosystem with a responsive accelerator pedal requires “discovery” by research faculty members as early-stage innovation in the value chain. Without addressing the discovery component and getting it optimal and finely tuned, pushing the innovation accelerator pedal is going to yield only a flaccid response and not what we want.

So, instead of the accelerator, let’s push the OnStar button and get a status check on research faculty members and see how well they are doing. Unfortunately, it’s a sad and disturbing report. On the one hand, faculty members are viewed through the political filter as left-wing liberals, certain to transform all young people into degenerates who destroy all we value as Americans. Others view them as feckless social neuters who live off the fat of the land and contribute nothing but the thirty thousandth and first research paper on Shakespeare. In Texas, the Governor supports a simplistic program advocated by the Texas Public Policy Foundation to measure the productivity and worth of faculty members to their institutions at the individual level. They want to separate research from education of the high technology workforce! How’s that going to work to produce a finely-tuned, high-performance innovation ecosystem in Texas? It’s retrograde thinking.

But the real shocker from the status report is the current job description for faculty members. It’s the silent and almost unknown killer of innovation through discovery and the subsequent downstream commercialization of university research. Here is my list of the responsibilities of a modern faculty member. It is not rank ordered.

1. Educator/Trainer
2. Advisor/Mentor/Counselor
3. Researcher/Scholar
4. Complier to rules and regulations
5. Salesman/Grantsman
6. Author/Publisher
7. Speaker/Traveler
8. Reviewer/Referee
9. Administrator
10. Innovator/Inventor/Entrepreneur
11. Economic developer
12. Social engineer
13. Service professional
14. Community engager
15. Human being/family member

A more complete description of these responsibilities can be found in Go Forth and Innovate!

It’s a daunting list of responsibilities! My generation of research faculty members grew up the post World War II era. Many of these responsibilities, while important, consumed little time and we were free to innovate through independent research and discovery. Our mantra was “and they pay me to do this!” But times have changed and the burdens associated with these responsibilities have grown. The mantra for many of our young potential faculty members has become “and who needs this!”

Let’s take the role of administrator as a specific example. Faculty members are now spending 42% of their time and effort on research grant administrative matters according to a survey by the Federal Demonstration Partnership. I repeat, 42%! In the 1980s, the number was 18%. How did this happen? How can it be that so much time is no longer spent on productive research? Research compliance and associated paperwork account for some of the load. But there are other factors. The administrative load of grant paperwork has increased. In the past much of that load was carried out by administrative assistants, but OMB circular A-21 excluded administrative costs as direct costs. Furthermore, indirect administrative costs are capped at 26%, below the percentage actually required. Unreimbursed indirect costs are a real problem for universities leading to cuts in administrative support to research grants. With the current financial and economic crisis in America and the massive budget cuts at universities, administrative support for research grants will be cut further and the load will fall on the faculty members. America will be lucky if the 42% administrative load holds at that level.

There are other faculty member responsibilities that are likewise exploding exponentially. The peer review system for publications, for faculty promotion and tenure evaluations, and for academic programs is not sustainable and considered broken by many including this author. Furthermore, the grants and research funding system is an enormous bureaucracy that works in some measure to produce “me too” incremental research, but tends to stifle frontier, cutting-edge research. And the list goes on.

The point is clear. The research faculty member as a full contributor to the innovation ecosystem is an endangered species. As Obama pushes the innovation accelerator to the floor board, the innovation ecosystem is going to sputter. How can it do otherwise? It’s no longer a high performance system. It’s a Model T Ford! At least one of its essential components is already maxed out.

Are we doing anything to help change the equation for research faculty members? Just the opposite! We keep piling on more and pushing harder on the pedal. Some use the rubric “more with less.” I like efficiency and improving productivity. We all do. But burning out an essential component isn’t the answer.

Some argue that we should dump the current innovation ecosystem completely and create an entirely new one. I see no rational reason to do that and we will still be faced with finding a slot for the discovery process and independent researchers. Instead, we need to free up our early-stage innovators and let them do what they do best.

Being a research faculty member is a complex job with many facets and responsibilities. The path from enthralled youngster curious about the ways of Mother Nature through student days to tenured faculty member and independent researcher is a worthy challenge that many choose to undertake. America, we need these people! Let’s not make their path and their life any tougher than it already is.

The Quick and the Dead: TTO Strategies

By Keith McDowell

Darwin had it right! The quick survive. Others die. The strategy is simple. Outrun your competitors! And that’s exactly what a lot of people and businesses attempt to do, including universities in their scramble to commercialize university research. Some universities have even taken to branding themselves with “one-size-fits-all” licensing deals that can be signed on the quick time. The Carolina Express License is one example among many. But does it work? Is fast the only answer?

“Survival of the fittest” is a tricky business as Darwin well knew. “Quick” never really meant “fast” in the sense of a gazelle outrunning the lion. It meant the ability to adapt to change better and faster than competitors. And change is exactly what universities face in the 21^st century. Driven by the ubiquitous demands for innovation and entrepreneurship from all quarters as the American answer to global competition, universities must adapt. They have no other choice given their role as the core element of regional innovation ecosystems.

And central to that role is the transfer of knowledge, or, more specifically, the technology transfer function, typically carried out by a technology transfer office (TTO). But the Darwinian imperative has already revealed itself as the TTO concept which was accelerated by the Bayh-Dole Act has morphed in the past decade into the office of technology commercialization (OTC) concept with the commercialization function trumping transfer. While organization charts and the assignment of priority and alignment to various functionalities in an organization is an essential activity in change management, it begs the question as well of strategy. Is there a best strategy or cluster of strategies for a TTO or OTC, assuming one adopts the conventional organizational structure?

In my former role as the Vice Chancellor for Research and Technology Transfer at The University of Texas System, I asked a number of TTO/OTC leaders to provide me with their favorite or possible strategies. I’ve condensed the list into 27 separate strategies. Not all possible strategies are given and some overlap. The nomenclature is intended to be self evident, but a more complete description is given in Go Forth and Innovate! Here is my unranked list:

1. Build and use relational networks.
2. Build trust through integrated interactions with university offices.
3. Make quality deals – don’t kill the deal.
4. Maximize return on investment.
5. Eat what you kill.
6. Maximize number of startups.
7. Create wealth.
8. Use procurement model – technology is available to everyone.
9. Give away intellectual property – hope for downstream donations.
10. Give away with strings attached – Rochester Institute of Technology model.
11. Maximize social impact.
12. Free-agency model – Kauffman Institute.
13. Maximize number of deals.
14. Minimize time needed to make deals.
15. Hit homeruns.
16. Use SBIR/STTR.
17. Don’t forget copyrights.
18. Maximize the greater good – humanitarian rights model.
19. Customers are always right.
20. University administration is always right.
21. Faculty is always right.
22. Venture capital is always right.
23. Angel investors are always right.
24. Entrepreneurs are always right.
25. Use a “one-size-fits-all” deal structure.
26. Use a real estate contract model – fill in the blanks.
27. Create master agreements with major players.

Did you find your favorite strategy or strategies in the list? Maybe not. I’m sure there are more strategies to be employed and different ways to aggregate or define the strategies. My goal in producing this list is to encourage debate and to bring all players in the commercialization of university research to the table for the purpose of realizing that a strategic vision is essential, that there are many elements, and that there is likely no one right answer. I personally support using a suite of strategies within the framework of situational management.

Ultimately, universities through their TTO/OTC must have a business plan including a vision of what they are trying to accomplish and a strategy to get them there. Simply having a TTO/OTC because everyone else has one is not a reason to exist. And far too many operate by the seat of their pants, rushing from one interaction to another and one deal after another, hoping to stay ahead of the hangman, or keep up with the treadmill. We’ve all played that game. But technology commercialization is a serious business and it must be treated as such.

I conclude with an often overlooked, but nonetheless, salient feature of technology commercialization as a business in universities. It’s a business that can’t fail in the classic sense and doesn’t have to go out of business. Why do I say such heresy? Well, for those who haven’t figured it out, a TTO/OTC is a small part of a much bigger operation whose raison d’etre never ceases to exist. Universities are in the education business and there will always be a need to educate our young. Furthermore, it’s not likely that basic research and the funding model for research in universities will disappear. Basic research means discovery, invention, and innovation. Universities must have a TTO/OTC no matter how badly run, inefficient, or ineffective. No matter the process, some of the innovations will make it through the pipeline and into the commercial marketplace. But that is unacceptable! The lack of the classic failure mode, as with normal business, is not an excuse for poor performance. Notwithstanding the fact that a lot of the hyperbole and complaints leveled at university technology commercialization is mostly nonsense and urban myth, universities have a stewardship responsibility as instruments of the people and an obligation in the spirit of noblesse oblige to perform technology commercialization to the high standards expected of universities for any endeavor. They must contribute their share to “Go Forth and Innovate!”