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MATERIALS TECHNOLOGIES FOR THE PROCESS INDUSTRIES OF THE FUTURE 4 Management Strategies This chapter provides the committee’s suggestions for improvements in program management, criteria for project selection, plans for commercialization, and industry involvement in OIT programs. Recommendations from this study (see Chapter 6 ), combined with the recommendations from an earlier NRC study (NRC, 1999), are applicable to crosscutting programs as OIT moves towards integrating its materials projects into the market-pull strategy. PROGRAM MANAGEMENT Based on presentations to the committee, it appears that the current OIT program management strategies are generally consistent with the objectives of the IOF Program. Nevertheless, program management could be improved in several ways. Crosscutting Approach Although R&D on crosscutting technologies is an effective way to leverage OIT research funding, finished products based on these technologies are not likely to be of equal value to multiple industries, largely because of the specific needs of each industry. To identify and develop a commercializable technology that would solve specific problems in several industries, OIT will first have to identify precompetitive research areas (towards the “basic” end of the research spectrum), the results of which could be a basis for OIT’s development of technologies for meeting the needs of a particular industry. OIT could also play a key role in the development of these technologies and in demonstrating the feasibility of revolutionary concepts.
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MATERIALS TECHNOLOGIES FOR THE PROCESS INDUSTRIES OF THE FUTURE Advisory Panels The U.S. Department of Defense uses advisory boards or panels to assist small and medium sized companies that perform federally funded work. Panels are set up by support contracts to avoid conflicts of interest. Each panel is composed of individuals with expertise in marketing, similar technologies/products, financial assistance (e.g., investment bankers or venture capitalists), patent licensing, and, in some cases, production specialists. Members of the panel are drawn from industry, universities, nongovernmental organizations, and government R&D agencies. Each individual is required to sign a nondisclosure agreement to prevent leaks of proprietary information. The purpose of the panels is to assist an industry in commercializing a new technology by providing advice on protecting intellectual property, finding financial aid, developing business plans, recommending contacts in similar technical areas, developing market surveys, and so on. One of the problems with DOE/OIT’s R&D is that, if a new technology is not used directly by the government or industry, it either remains on the shelf, is adopted and exploited by a foreign country, is reinvented years later with new funds, or reaches the market by accident. OIT’s market-pull approach is an attempt to change this situation. An advisory panel of industry experts might further increase the chances of commercial successes. Recommendation. The Office of Industrial Technologies (OIT) should establish a permanent advisory panel of industry experts to work in parallel with OIT’s industry teams. Members of the panel could be drawn from these teams and should include at least one representative of each Industries of the Future member industry. The advisory panel would provide expert knowledge and advice to OIT program managers and ensure that the ultimate goals are kept in focus throughout the development cycle of a technology. The panel should perform the following functions: rank industry priorities and select programs assist in developing program metrics (to measure progress) review programs annually Specific Needs of Industries Government programs sometimes have unintended impacts on commercial investments in growing areas of the economy. Government planners must recognize that well meaning government research could inhibit commercial investment. For example, government-funded research, the results of which are open to the public, may reduce a new product to a commodity, eliminating any differential advantage or
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MATERIALS TECHNOLOGIES FOR THE PROCESS INDUSTRIES OF THE FUTURE profitability. OIT program managers should study the business models in the IOF industries to determine their investment strategies. R&D will be most beneficial if an enthusiastic industry recipient plans to implement the new technology. In presentations to the committee, OIT representatives described the development of road maps by the IOF industries, the solicitation of proposals in specific R&D areas, and the awarding of contracts to teams (typically with industry, university, and national laboratory participation). OIT encourages these teams to transfer the results to commercial industries, through appropriate licensing agreements and other mechanisms, as early as possible. Although this is a logical progression, OIT has not fully addressed the following questions: The road maps, in general, are shopping lists of many projects— ranging from projects that would require massive resources (e.g., “to develop a coal-based process that produces liquid iron directly from coal and ore fines or concentrate” [AISI, 1998]) to projects that would require modest resources (e.g., “to quantify the degree to which molten metal wets a ceramic substrate” [AISI, 1998]). How are projects prioritized? Who decides which proposals to solicit? How are proposals reviewed? Is there a peer review to supplement OIT’s judgment, and who does it? What criteria are used to measure progress? What criteria are used to determine if a project should be phased out and over what time scale? What criteria does OIT use to ensure that the teams have the best available participants, as opposed to those most anxious for funding? Can OIT managers suggest that team members be changed to improve the overall composition of the team? What is the economic impact of the research? How will this affect the technology transfer to industry? What are the economic incentives for implementing the new technology? CRITERIA FOR PROJECT SELECTION Currently, OIT’s project selection appears to be greatly influenced by the program manager heading the IOF department associated with a particular industry. Although this may ensure accountability, it may not result in the best selections. The committee recommends that OIT establish a panel of experts that includes industry leaders to select projects that are (1) of value to the industry and (2) consistent with OIT’s objectives of reducing energy consumption and waste generation. The panel should also assess the project’s potential economic payoff. OIT’s most critical
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MATERIALS TECHNOLOGIES FOR THE PROCESS INDUSTRIES OF THE FUTURE function would be to fund and promote high-risk/high-payoff projects that would not be undertaken at the commercial level because of competitive pressures. Prioritization of Programs The industry road maps include many more needs than the OIT budget can possibly support. Thus, prioritization is essential. However, the committee was unable to clarify how OIT currently prioritizes projects. In the committee’s opinion, OIT should approach prioritization in the following way: Industry should rank the needs listed in its own road map and then request proposals for its most critical needs. OIT should establish a group of knowledgeable people, several from outside DOE, to assign qualitative rankings (e.g,. excellent, very good, good, fair and poor) for potential to meet industry needs and OIT goals of energy efficiency and waste reduction. The OIT program manager should select from the best proposals available for the highest ranked projects. OIT should ensure that the selected projects constitute a balanced program. Balanced Portfolio It was not clear to the committee how OIT selects and compares the low-risk/low-return projects with potentially high-risk/high-return projects. Very few projects appear to address the issues of risk or the probability of success. For some projects, potential energy savings was used as a measure of success, but economic impact was not considered. Surely, OIT must also consider economic impact when allocating its resources. Economic Impact as a Metric The successful transition of a product from R&D to the marketplace has been enthusiastically supported by the U.S. Congress as a means of improving the status of depressed industrial sectors that must compete in a global market. Several briefers identified potential energy savings as a goal but did not describe potential economic benefits or if their programs could compete successfully against foreign competition. OIT’s programs could contribute to the revitalization of economically depressed commodity industries. Measuring OIT’s success in terms of reduced energy
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MATERIALS TECHNOLOGIES FOR THE PROCESS INDUSTRIES OF THE FUTURE consumption and reduced waste generation, as well as economic impact, would also be helpful to Congress in reviews of future agency budgets. In other words, OIT’s programs could be partly evaluated for their potential for improving U.S. industrial status. Visible success that can be measured in new competitive technologies, the creation of new jobs, and economic improvements in depressed areas will continue to be rewarded by Congress. OIT should develop metrics for reporting its achievements in these terms, in addition to metrics for reduced energy consumption and reduced waste generation. High Risk as a Criteria Many of the programs briefed to the committee were long term and did not have clear metrics for measuring their progress. Technology breakthroughs that could revolutionize entire industrial sectors or create new industries, such as the Internet, will require some high-risk R&D. Therefore, OIT should balance potential risks and benefits when evaluating proposals, and the portfolio should include some high-risk projects. Carefully chosen high-risk programs will challenge current technologies with innovative systems and procedures that might meet OIT’s goals and provide substantial economic benefits from investments Measures of Project Success OIT has not been able to declare a project successful because the criteria for a successful program were not specified at the outset. The “successes” presented to the committee were mostly interim successes based on technologies that may become commercialized over time. To avoid disappointments, OIT should establish a clear definition of a successful result (not necessarily commercial introduction, which can be a long process) at the proposal stage. During periodic reviews, if measurable progress has not been made, OIT may decide to reevaluate its support for the program and, perhaps, initiate a phased termination. This approach would relieve the pressure on contractors to solve problems that may not be soluble with current knowledge and would free funds for other uses. Considering how rapidly industrial needs are changing, annual reviews of ongoing projects can be used to judge whether or not to continue funding for a project. This process would require that OIT develop a definition of a successful project and establish criteria (metrics) for determining whether or not funding for a particular program should be continued.
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MATERIALS TECHNOLOGIES FOR THE PROCESS INDUSTRIES OF THE FUTURE COMMERCIALIZATION PLANS The committee found many areas for improvement in the commercialization of new technologies. Each national laboratory has an office of research and technology applications (ORTA) responsible for transferring potentially commercial technologies to the private sector. Every ORTA has at its disposal a network of potentially interested companies and can provide access to several databases and publications that could be used to advertise the availability of new technologies developed in the national laboratories and/or companies under contract to DOE. Companies in the ORTAs’ network could expedite the transfer of a technology to the market in several ways: facilitating license agreements to produce and market the technology; partnering with the developer; entering into a joint venture; or providing financial assistance in return for a portion of the royalties or rights to the technology. In addition to ORTAs, OIT could improve the commercialization process by taking advantage of SBIR and STTR programs, which focus on commercialization of technologies developed by small businesses. Barriers to Commercialization An understanding of, and sensitivity to, the financial hurdles and business-value concepts associated with project selection in a commercial environment are the most common barriers to the successful commercialization of technologies developed by OIT. During the evaluation stage of new projects, more attention should be paid to the economic impacts/benefits of the product on the commercial market. The willingness and ability of commercial firms to accept a new technology should also be considered. Many companies have low risk tolerance, especially companies operating in commodity markets, such as the IOF industries. Other commercial factors to consider during the project-value assessment are maturity of the market, the cyclical nature of some businesses, and sensitivity of the industry to capital-intensive projects. To ensure that projects are consistent with industry needs, cost/benefit analyses should be performed for each project. Characterization of projects in terms familiar to the industry would increase the likelihood of future commercialization. INDUSTRY INVOLVEMENT Truly effective research funded by OIT to develop and deliver advanced energy efficiency, renewable energy, and pollution prevention technologies should be closely coordinated with industry needs, in terms of timing and technology. The economic payoff may depend on meeting an industry need. If the research is not
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MATERIALS TECHNOLOGIES FOR THE PROCESS INDUSTRIES OF THE FUTURE focused on meeting an industry need, OIT should carefully consider whether or not to support the project. In some cases, the research may be justified, but these should be the exception rather than the rule. OIT must also consider how its R&D programs will affect private investment in an industry. Government funding in a given area usually chases out private funds for a number of reasons. In general, government research, which must make its results available to the public, may undermine a product’s differential advantage and hence its profitability, thus reducing it to a commodity. To avoid this, OIT’s linkages with industry through IOF must remain strong. The industries in IOF are high-volume, slowly changing, commodity (i.e., with limited company control of pricing), capital-intensive, cyclical industries. Operating conditions frequently dictate that plants cannot risk experimental changes. In some cases, cash flow cannot support any changes. Opportunities do appear, however, although they cannot be predicted easily at the start of a program. Keeping operators and decision makers informed of new technologies may whet industry interest and encourage change. Ensuring that OIT R&D is consistent with industrial needs is paramount to ensuring the successful commercialization of technologies upon completion of the project. In the past, OIT has successfully used a team-review approach to manage its programs, most, if not all, of which had buy-in by an industrial partner from the onset of the technology development process. Therefore, experience suggests that partnering with the end-user early in the project (ideally, beginning with project selection and scope development) is critical to successful commercialization. The establishment of industry-expert positions in DOE could help provide oversight of the project development process. Industry experts would bring an industrial perspective to the DOE programs and maximize the probability of their successful commercialization. Industrial end-users should include various levels of company management and employees, from CEOs to vice presidents to operation-level staff. A senior technical person in the company should be involved on a regular basis. Combined information from research universities and government agencies, and input from industry participants would ensure the selection of sound projects with high prospects for commercialization.
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