Annex B:
Sample Proposal

NATIONAL RESEARCH COUNCIL

Capitalizing on Science, Technology, and Innovation:

An Assessment of the Small Business Innovation Research Program

Proposal to the National Institutes of Health (Sample)

I. Overview

A. Summary

The Small Business Innovation Research program (SBIR) is one of the largest government-industry partnerships in the United States. At approximately $1.2 billion annually, it will continue to expand with increases in federal funding for research. In anticipation of this expansion, the relevant Congressional Committees believe that the SBIR program would benefit from an objective review of the program's operation.

As part of the recent renewal of the SBIR program, the Congress mandated (H.R. 5667: Section 108) that the National Research Council (NRC) undertake a comprehensive study of how the SBIR program has stimulated technological innovation and used small businesses to meet federal research and development needs at the five agencies which have SBIR programs larger than $50 million annually. The National Institutes of Health’s (NIH) SBIR program is included within these legislated parameters. The NRC is tasked with carrying out this study and must contract with the relevant agencies no later than 20 June 2001.

To comply with this legislation, the NRC hereby proposes a study of the SBIR program at the NIH, for an initial period of three years.76 This study is to be carried out in close cooperation with NIH officials and program managers. Results of the study will be integrated, as appropriate, into a broader report on the contributions of the SBIR program as a whole to federal research and development needs.

B. Statement of Task

The program for the NIH, currently funded at approximately $410 million annually, is one of the larger components of the SBIR program. Moreover, as the importance of the NIH’s SBIR program continues to expand, it can help the NIH maximize the return on its R&D budget.

The study will:

  • Satisfy the Congressional mandate for an objective, external assessment of the program;

  • Provide an empirical analysis of the operations of the SBIR program, including both quality of research and commercialization of awards, for NIH officials and program managers;

  • Address research questions relevant to the program’s operation and evaluation that emerge in the course of the study of the NIH SBIR program;

  • Contribute to a comprehensive assessment of the program and to Congressional understanding of its accomplishments, challenges, and ongoing contributions.

This study will review the NIH program with regard to parameters such as the quality of the research projects being conducted under the SBIR program, the commercialization of the research, and the program’s contribution to accomplishing the NIH missions. To the extent possible, the evaluation will

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The legislation calls for a six-year study. In agreement with the NIH, the NRC proposes an initial three-year effort to be followed by a review and agreement as to the requirements for the second phase of the analysis.



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Annex B: Sample Proposal NATIONAL RESEARCH COUNCIL Capitalizing on Science, Technology, and Innovation: An Assessment of the Small Business Innovation Research Program Proposal to the National Institutes of Health (Sample) I. Overview A. Summary The Small Business Innovation Research program (SBIR) is one of the largest government-industry partnerships in the United States. At approximately $1.2 billion annually, it will continue to expand with increases in federal funding for research. In anticipation of this expansion, the relevant Congressional Committees believe that the SBIR program would benefit from an objective review of the program's operation. As part of the recent renewal of the SBIR program, the Congress mandated (H.R. 5667: Section 108) that the National Research Council (NRC) undertake a comprehensive study of how the SBIR program has stimulated technological innovation and used small businesses to meet federal research and development needs at the five agencies which have SBIR programs larger than $50 million annually. The National Institutes of Health’s (NIH) SBIR program is included within these legislated parameters. The NRC is tasked with carrying out this study and must contract with the relevant agencies no later than 20 June 2001. To comply with this legislation, the NRC hereby proposes a study of the SBIR program at the NIH, for an initial period of three years.76 This study is to be carried out in close cooperation with NIH officials and program managers. Results of the study will be integrated, as appropriate, into a broader report on the contributions of the SBIR program as a whole to federal research and development needs. B. Statement of Task The program for the NIH, currently funded at approximately $410 million annually, is one of the larger components of the SBIR program. Moreover, as the importance of the NIH’s SBIR program continues to expand, it can help the NIH maximize the return on its R&D budget. The study will: • Satisfy the Congressional mandate for an objective, external assessment of the program; • Provide an empirical analysis of the operations of the SBIR program, including both quality of research and commercialization of awards, for NIH officials and program managers; • Address research questions relevant to the program’s operation and evaluation that emerge in the course of the study of the NIH SBIR program; • Contribute to a comprehensive assessment of the program and to Congressional understanding of its accomplishments, challenges, and ongoing contributions. This study will review the NIH program with regard to parameters such as the quality of the research projects being conducted under the SBIR program, the commercialization of the research, and the program’s contribution to accomplishing the NIH missions. To the extent possible, the evaluation will 76 The legislation calls for a six-year study. In agreement with the NIH, the NRC proposes an initial three-year effort to be followed by a review and agreement as to the requirements for the second phase of the analysis. 36

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include estimates of the benefits, both economic and non-economic, achieved by the SBIR program, as well as broader policy issues associated with public-private collaborations for technology development and government support for high technology innovation, including benchmarking of foreign programs to encourage small business development. Where appropriate, operational improvements to the program will be considered. The project will assess the contributions of the SBIR program with regard to economic growth, technology development and commercialization, and contributions by small business awardees to the accomplishment of agency missions, while seeking to identify best practice for the operation of the SBIR program. The project will encourage cross-fertilization among program managers, agency officials, and participants by convening national experts from industry, academia, and the public sector to review and discuss research findings. II. Background A. NRC and Technology Policy Since 1991, the National Research Council has undertaken a program of activities to improve policy makers' understandings of the interconnections of science, technology, and economic policy and their importance for the American economy and its international competitive position. The NRC's activities have corresponded with increased policy recognition of the importance of technology to economic growth. New economic growth theory emphasizes the role of technology creation, which is believed to be characterized by significant growth externalities. In addition, many economists have recognized the limitations of traditional trade theory, particularly with respect to the reality of imperfect international competition. Recent economic analysis suggests that high-technology is often characterized by increasing rather than decreasing returns, justifying to some the proposition that governments can capture permanent advantage in key industries by providing relatively small, but potentially decisive support to bring national industries up the learning curve and down the cost curve. There is also growing attention given to the potential of science-based economic growth derived from clusters of universities, laboratories, leading corporations, and dynamic small businesses. Recognition of these linkages and the corresponding ability of governments to shift comparative advantage in favor of the national economy provides the intellectual underpinning for government support for high-technology industry and especially small business. B. Policy Context The creation of new high technology business is a central concern of policymakers around the world. Starting in the late 1970s and accelerating in the 1980s, a growing body of empirical evidence began to indicate an increasing role for small business in job creation and innovation.77 A recent report by the Organization for Economic Cooperation and Development (OECD) confirms policymakers’ perceptions that small and medium-sized enterprises are major sources of economic vitality, flexibility, and employment.78 In the United States, programs to support high technology business were launched during a time of increasing concern over the ability of U.S. companies to commercialize R&D results. A prominent element in the diagnosis of America’s economic ills during this period involved the country’s failure to successfully commercialize new technologies developed by researchers. A recent report by the National Research Council recalls how the “gloomy picture of U.S. industrial competitiveness” in the 1980s was frequently cast in terms of American industry’s failure “to translate its research prowess into commercial advantage.”79 One of the strategies adopted by the United States in response to its loss, or 77 Zoltan J. Acs and David B. Audretsch, Innovation and Small Business. Cambridge, MA: MIT Press, 1991. For specifics on job growth, see Steven J. Davis, John Haltiwanger, and Scott Schuh, “Small Business and Job Creation: Dissecting the Myth and Reassessing the Facts,” Business Economics, vol. 29, no. 3, 1994, pp. 113-22. 78 Small business is especially important as a source of new employment, accounting for a disproportionate share of job creation. See OECD, Small Business Job Creation and Growth: Facts, Obstacles, and Best Practices. OECD, Paris, 1997. 79 David C. Mowery, “America’s Industrial Resurgence (?): An Overview,” in David C. Mowery, ed., U.S. Industry in 2000: Studies in Competitive Performance. Washington, D.C.: National Academy Press, 1999, p. 1. This volume examines 11 economic sectors, contrasting the improved performance of many industries in the late 1990s with the apparent decline that was subject to much scrutiny in the 1980s. Among the studies highlighting poor economic performance in the 1980s include Dertouzos, et. al., Made in America: The MIT Commission on Industrial Productivity, Cambridge, MA: The MIT Press, 1989 and Eckstein, et al., DRI Report on U.S. Manufacturing Industries, New York: McGraw Hill, 1984. 37

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perceived loss, in competitiveness in some sectors was to encourage greater cooperation among companies and between industry and government. The rapid growth of small firms into large, sometimes very large firms is one of the defining features of the late eighties and the nineties. These new firms have been instrumental in bringing new products and processes to the market. As the allocation and relative shares of the U.S. research and development budgets continue to evolve, small business is recognized as a major source of economic growth and technological innovation. Improved understanding of the policy questions associated with programs to encourage the commercialization of research by small business is therefore important. Indeed, the interrelationship among universities, industry, and government is a central element of the national innovation system, and one in which the SBIR program plays an increasingly salient role. From an international perspective, understanding the benefits and challenges of this type of program is also valuable insofar as they have been, and remain, a central element in the national development strategies of both industrial and industrializing countries. Recent data collected by the OECD suggests that worldwide government expenditure on support for high-technology industry and small business continues to rise. The proliferation of these programs provides a rich base of experience and underscores the current policy relevance of national programs to encourage small business development. C. Recent National Research Council Contributions The NRC has demonstrated its capability in the area of research and technological innovation by small companies through its major study on Government-Industry Partnerships for the Development of New Technologies. This multiyear, multifaceted study reviews the drivers of industry-university-government cooperation for technology development, current partnership practices and challenges, sectoral differences, means of evaluation, and the experience of foreign-based partnerships. Under this project, the NRC conducted an overview of the SBIR program80 and initiated the first large-scale, independent assessment of the SBIR program at the Department of Defense.81 The extensive research carried out by the National Research Council’s team of nationally recognized scholars has achieved substantial progress in terms of research techniques, understanding of SBIR program objectives, and the development of promising lines of inquiry for additional research. One of the major recommendations of the recent Academy analysis was the need for additional research.82 The Congressional mandate, joined with the NRC’s established methodology and the tacit knowledge acquired by the research team, offer a unique opportunity for an informed assessment of the NIH SBIR program. D. Steering Committee Oversight Drawing on the considerable public and corporate interest in these issues, the NRC will assemble a multidisciplinary Steering Committee to oversee the project and the review of the NIH’s SBIR program. The Committee will include industry leaders, expert academics, successful entrepreneurs with experience in the SBIR program, and experienced public policy makers with extensive knowledge of the SBIR program as well as issues associated with R&D and business development. To address the broad range of issues taken up by the project, the Committee will convene a series of fact- finding workshops, symposia, and conferences, and commission analyses of existing partnerships to establish the basis for a consensus report by the Academies. In light of the interest in the issues under review by the project, the Committee will issue intermediate reports as required to highlight important issues for the program and enable the Committee to respond to research questions as they emerge. III. Goals, Methodology, and Deliverables A. Overall Goals of the Study 80 See National Research Council, The Small Business Innovation Research Program: Challenges and Opportunities. Washington, D.C.: National Academy Press, 1999. 81 National Research Council, The Small Business Innovation Research Program: An Assessment of the Department of Defense Fast Track Initiative. Washington, D.C.: National Academy Press, October 2000. 82 Ibid 38

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A major advantage of this project is that although it will be carried out as a separate activity, the analysis will be conducted in the context of a multiyear, multifaceted assessment of the SBIR program in the five agencies accounting for 96 percent of program expenditure, as called for in H.R. 5667. Combined with the Academies’ current work on government-industry partnerships, this brings substantial benefits in terms of the expertise, experience base, and related work already undertaken. The two publications by the NRC on the SBIR program, cited above, illustrate this advantage. For the study as a whole, the overall goals are to develop: 1. Improved understanding of the conditions associated with successful and unsuccessful outcomes for the SBIR program. This includes but is not limited to mission-related R&D including procurement, small business development and growth, and the commercialization of new products and processes; 2. Best practice principles of operation, based on U.S. and foreign experience, for the SBIR program to support high technology small business and entrepreneurship. The SBIR program continues to grow as the federal R&D budget rises. This expansion highlights the need for better understanding by public policymakers and private participants alike of the rationale for public contributions and the conditions most likely to ensure successful programs. In the context of these goals, the study will seek to provide an objective review of: 1. The operations and effectiveness of the SBIR program with regard to: • agency missions; • support for R&D and innovation; • commercialization of new products and processes; • small business development and job growth; 2. General issues of importance, such as the rationale and national benefits to be derived from government support to small business to help bring new technologies to market; the principles which should guide such cooperation, demarcating the role and contribution of the public authorities, including the government’s role in supporting university-industry research; the current practices and policies of foreign governments designed to encourage the development of small business both as a point of reference and comparison; and the relationship of different types of cooperative programs which affect the operations and prospects of small firms, including the rationale for strategic alliances among firms and universities in sectors supported by publicly funded programs. B. Project Methodology for the NIH SBIR Assessment Accordingly, the NRC proposes to the NIH the following research strategy, to be carried out in close consultation with responsible program managers, for a review of the NIH’s Small Business Innovation Research program. The NRC research team, in cooperation with leading economists, relevant program officials, responsible NIH managers, and small business representatives, will develop the following: 1. Definition of Success: An operational definition(s) of SBIR success for the NIH, taking into account the diverse goals of the NIH mission; 2. Survey Instrument: A survey instrument to be applied to a significant sample of SBIR award recipients. The survey instrument will be designed to gather information on firm development, technological progress, and the operations of the SBIR program; 3. Case Study Template: A series of questions for use in conducting case studies of NIH SBIR award recipients to provide greater detail and depth on selected SBIR award recipients. The case studies will focus on the award process, intermediate achievements, indicators of project success, and long-term impact, including, inter alia, measures such as papers, patents, products, sales, and acquisitions of awardees; 4. Survey and Case Development, Execution, and Evaluation: A group of leading academics in small business development and innovation policy will be commissioned to conduct original field research and analyze that research. In order to examine the NIH SBIR program from multiple perspectives, the project will include a triangulation of case studies, surveys, and empirical 39

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analysis. Where required, an original survey of a wide selection of firms which have participated in the NIH SBIR program will be undertaken.83 There is virtually no academic literature on the NIH SBIR program. The National Academies’ study will be one of the first independent, external reviews of the program as a whole. C. Tasks: In carrying out this study, the NRC will: • Assemble A Research Team: Assemble a research team of qualified academics to assist the NRC in carrying out its research; • Develop Metrics: Convene a small workshop(s), which will include the NRC research team and relevant NIH program managers, to develop operational definitions of program success and appropriate metrics, and review emerging issues for the program in light of new the NIH missions or needs; • Prepare A Methodology for the NIH: Drawing on the experience of the NIH program managers, the NRC will prepare a methodology for assessment of the NIH SBIR program using input from the NRC research team and discussion at the workshop(s), which will include a case study template, a survey instrument, and appropriate focus areas; • Identify Case Categories: Identify appropriate categories of firms for case studies involving both promising technologies and/or research results; • Conduct Case Studies: Carry out, via the research team, case studies of a significant subset of the NIH SBIR awardees, employing the case study template developed in cooperation with the NIH; • Survey: Conduct a survey of a significant subset of NIH SBIR awardees employing the survey instrument developed by the research team in cooperation with the NIH. • Organize Symposium: Organize a substantial symposium to discuss new orientations/initiatives for the NIH program and to review publicly the results of the research; D. Deliverables Under the study, the NRC would commit to: • Prepare annual progress reports; • When the initial phase of research is completed, prepare a report based on the research, providing an overview of the current NIH SBIR program and identifying accomplishments, emerging challenges, and possible policy solutions; • Prepare a Summary Report including the NIH-specific research to submit to Congress. IV. NRC Dissemination The process of holding a number of high profile events, bringing together national experts from industry, academia, and the public sector, should itself contribute to an improvement of the quality of the national debate on these subjects. The policy recommendations, with supporting evidence and analysis, will be addressed to SBIR program managers and agency leadership, members of Congress and the Executive Branch, industry leaders, and major associations as well as relevant international organizations. An important and distinctive element of the work of the Academy is its well-developed dissemination process designed to maximize the policy impact of the findings and recommendations of its projects. Normally, the process includes several phases. The NRC’s publishing arm, National Academy Press, produces high quality final publications with a wide audience. At the moment of publication, the Academy staff also produce a series of accompanying press reports 83 In cooperation with the NRC, BRTRC, Inc. conducted a similar survey for the National Research Council's review of the Department of Defense SBIR Fast Track initiative, a study conducted in 1998-1999. That survey had an unusually high response rate compared to similar surveys, and provided a wealth of new data on the program. BRTRC is a highly qualified consulting firm located in the D.C. area, and has done extensive work on the SBIR program over the last several years, on contracts with the Department of Defense, the Small Business Administration, and the National Academies. 40

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and other dissemination materials. When the project report is released, a formal press conference, attended by national and international publications, and discussion seminars may be organized by the Academy. The National Research Council also undertakes a concerted effort to disseminate the project's findings and conclusions. Opinion articles will be prepared for newspapers and influential journals, presentations and discussion will be organized at the Academy and other academic and policy forums as well as briefings, speaking engagements for key participants, and testimony before appropriate legislative bodies. Reports resulting from this effort shall be prepared in sufficient quantity to ensure their distribution to the sponsor and to other relevant parties, in accordance with Academy policy. Reports may be made available to the public without restrictions. V. Public Information A. FEDERAL ADVISORY COMMITTEE ACT The Academy has developed interim policies and procedures to implement the Federal Advisory Committee Act, 5 U.S.C. § 1 et seq. (FACA), as amended by the Federal Advisory Committee Act Amendments of 1997, H.R. 2977, signed into law on December 17, 1997 (FACA Amendments). The FACA Amendments exempted the Academy from most of the requirements of FACA, but added a new Section 15 that includes certain requirements regarding public access and conflicts of interest that are applicable to agreements under which the Academy, using a committee, provides advice or recommendations to a Federal agency. In accordance with Section 15 of FACA, the Academy shall deliver along with its final report to the NIH, a certification by the Responsible Staff Officer that the policies and procedures of the National Academy of Sciences that implement Section 15 of FACA have been complied with in connection with the performance of the contract /grant/cooperative agreement. Public Information About the Project B. The NRC will post on its web site (http://national-academies.org) a brief description of the project, as well as committee appointments with short biographies of the members, meeting notices, and other pertinent information, to afford the public greater knowledge of our activities, and an opportunity to make comments. The website will also include an ongoing record of compliance to the requirements of Section 15 of the Federal Advisory Committee Act of 1997, and a certification of compliance will be provided when the study is completed. 41