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An Industrial Perspective on Technology Commercialization in the 1990s and Beyond

A. MacLachlan

E.I. duPont de Nemours & Company (Retired)

Many lessons can be gleaned from the struggles of industry, universities, and the federal government in the United States during the last decade to improve technology commercialization performance. The resulting adjustments of U.S. technology-oriented firms, although unlikely to be directly applicable to the situation faced by the Russian scientific enterprise as it tries to reorient itself toward the needs of a free enterprise system, may be adaptable to the Russian scene.

The struggles referred to above have unquestionably yielded fruit. Today U.S. companies generally are acknowledged to be quite competitive in world markets. They are considered innovative, and even in the eyes of their most stern critics largely they have overcome accusations that they were slow-moving, low-quality, high priced behemoths—products of a spoiled past when no real global competition existed.

This paper is written from the perspective of long-established companies, such as Dupont, GE, IBM, GM, and Merck, which to the outside world appeared to have the most acute problems meeting the demands of the new economic realities. However, the lessons these companies learned and the changes they adopted clearly are just as integral to the success of relatively new companies such as Intel, Compaq, and Microsoft.

What changes have improved technology commercialization? They seem to fall into two major categories: improved information processes—improved communication and sharing of information among all personnel involved in the commercialization process, and improved technology acquisition processes—improved understand of how to gain new technology from the ''best" source(s) to reduce the risk, lower the costs, and decrease the time to convert new technology into products, processes, and services. To be sure, these categories overlap and may oversimplify the changes that U.S. companies adopted. Nevertheless, they provide insight into the key elements of the rejuvenated capabilities of modern companies.



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--> An Industrial Perspective on Technology Commercialization in the 1990s and Beyond A. MacLachlan E.I. duPont de Nemours & Company (Retired) Many lessons can be gleaned from the struggles of industry, universities, and the federal government in the United States during the last decade to improve technology commercialization performance. The resulting adjustments of U.S. technology-oriented firms, although unlikely to be directly applicable to the situation faced by the Russian scientific enterprise as it tries to reorient itself toward the needs of a free enterprise system, may be adaptable to the Russian scene. The struggles referred to above have unquestionably yielded fruit. Today U.S. companies generally are acknowledged to be quite competitive in world markets. They are considered innovative, and even in the eyes of their most stern critics largely they have overcome accusations that they were slow-moving, low-quality, high priced behemoths—products of a spoiled past when no real global competition existed. This paper is written from the perspective of long-established companies, such as Dupont, GE, IBM, GM, and Merck, which to the outside world appeared to have the most acute problems meeting the demands of the new economic realities. However, the lessons these companies learned and the changes they adopted clearly are just as integral to the success of relatively new companies such as Intel, Compaq, and Microsoft. What changes have improved technology commercialization? They seem to fall into two major categories: improved information processes—improved communication and sharing of information among all personnel involved in the commercialization process, and improved technology acquisition processes—improved understand of how to gain new technology from the ''best" source(s) to reduce the risk, lower the costs, and decrease the time to convert new technology into products, processes, and services. To be sure, these categories overlap and may oversimplify the changes that U.S. companies adopted. Nevertheless, they provide insight into the key elements of the rejuvenated capabilities of modern companies.

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--> Improved Information Processes Improved communications and sharing of vital business information among all parties involved in the commercialization process appears to be the single most important change. Many books have been written on the subject.1 According to most of these books, the "old" R&D department functioned independently within a company or business unit, largely deciding for itself which new products and processes the company or unit needed. Customers were involved only when prototype products were available, and manufacturing specialists then were expected to figure out how to make the product at a price and level of quality acceptable to customers. This portrayal appealed to readers not really familiar with the complex world of R&D within a company. For those in the real world, it often was viewed as wrong and too simplistic. By the early to mid-1980s, and in many cases long before, the business and R&D leaders of most companies realized that something was wrong with their internal relationships. R&D was viewed as isolated, alarmingly independent, and very costly. It took some time, but events in world markets forced a rethinking of the role of R&D organizations within business structures. These events included a continuing loss of market share to foreign competition, recognition of poor product quality, excessively high prices, and slowness to respond to customer needs. Many internal and external surveys and studies clearly demonstrated erosion of profitability, poor use of capital, decreasing innovativeness, and many more indicators of noncompetitive business performance. Once business and R&D managers finally acknowledged a mutual problem in understanding each other, they quickly recognized that R&D departments were not really in the mainstream of all informational input critical to a business. Many steps were taken to change this situation. All have the same overriding objective: to ensure that the R&D organization is fully integrated into the business "team" and feels intense responsibility for business success. Today's successful businesses are run as teams. When planning technology strategies, these teams involve all the important functions (marketing, manufacturing, sales, finance, and R&D). Clearly, customers are not involved in all proprietary planning, but customer views are sought early in the technology planning stage to help business and R&D leaders decide whether to proceed in certain new directions. This input helps the business teams understand the customers' needs. The more trust that can be generated between customers and business planning teams, the better the overall result. The involvement of R&D in business planning must be at all levels. It is not sufficient for just the management to be privy to business plans. Furthermore, 1   See, for example, Philip A. Roussel et al., Third Generation R&D, Harvard Business School Press, 1991, and Michael L. Dertouzos et al., Made In America, M.I.T. Press, 1989.

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--> when the pertinent research personnel are involved in business planning and exposed to all the information critical to the business, they are often in a much better position to realize when things are not going well with a technology development, or when new technology-based opportunities may be available. R&D personnel must visit customer sites, jointly plan and review status with marketing and manufacturing groups, and communicate effectively with and listen to the business leadership. No longer can the R&D function be referred to simply as those "scientists and engineers," but rather the personnel must be routinely thought of as valued participants in all aspects of business planning and investing. Within Dupont, this new team approach has led to a virtual "explosion" of renovation around business needs. To name a few, these include new methods to manufacture polyester polymer that lowers energy costs, improves product yield and lowers investment; novel approaches to turn waste products with major environmental effects into valued new commodity chemicals for nylon processes; and innovative ways to heat polymer reactant streams with lower energy and more control to reduce investment and produce higher quality and in some cases new kinds of products. Many "best business" practices have been devised to ensure the intimate involvement of R&D departments in all aspects of business management. One of the most valuable practices is structured progress reviews of each ongoing project for business team members. These reviews require collaborative decision-making about whether to proceed with new technology exploration or new and improved product and process developments. The goal of these reviews is to ensure that representatives of each function within the business understand the progress being made by R&D, give input and advice, and make adjustments in response to the new information, thereby minimizing the time and cost to complete projects as well as problems after the products are offered to customers. This "best practice" has many names, among them "Stage Gate'' and "Product and Cycle Time Excellence." Other "best practices" include profit sharing to ensure that all functions within a business have a financial stake in success, the use of metrics to judge the impact of R&D performance on business success, and the provision of rewards and public recognition for exemplary performance. Companies like Dupont, GE, and IBM historically had large basic research laboratories that operated independently of the individual business units, so the establishment of links to the business information stream has been particularly challenging. Some companies decided to give up their broadly based corporate research laboratories. Other companies, such as the ones mentioned above, retained these central organizations because of their powerful capabilities to hire the best technical people and achieve real technology breakthroughs in support of business objectives. Great success has been achieved. In Dupont, for example, the corporate research department is no longer viewed as an "ivory

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--> tower" isolated from business concerns, but instead as a key player in maintaining the company's competitive advantage. In Dupont's case, one of the most important changes was a decision to involve all levels of the corporate research organization in business technology planning. Corporate personnel were expected to help identify areas of technology breakthrough in which one or more businesses could gain major competitive advantage. These were called commitments to "grand challenges" and have been extremely successful. One recent breakthrough was the development of an energy-efficient membrane process to recycle hydrochloric acid back to chlorine. Hydrochloric acid is a major by-product of almost every commodity chemical process, and its disposal is often a major cost and environmental problem. Other changes at Dupont included management exchanges with the business R&D organizations, the placement of corporate and business R&D personnel in the same buildings, and the establishment of a Corporate Technology Council, which is made up of leaders from all the company's R&D organizations and gives input and direction to the total corporate research effort. For the R&D organizations, the success of all these changes is evident in their increased budget and hiring allocations, their enhanced responsibility for certain technology areas, and their role in planning the use of the entire company's pilot plants. Improved Technology Acquisition Processes The second key change that has improved technology commercialization is acquisition of technology from the best sources available, sources that are both cost-effective and timely. A few years ago most U.S. and European companies were fairly self-reliant in developing technology and had been so for several decades. They created products and services from technology they had developed internally or from technology acquired technology in its early stages from inventors or other companies. Collaboration among companies or even with purveyors of technology was the exception rather than the rule. In order to succeed in today's world of intense and highly capable competition, companies have become skilled at acquiring and commercializing technologies in new and quicker ways. Often these technologies are not exclusively theirs, but they are obtained from some outside source or co-developed with outside partners in order to save time and money. Today's competitors are very conscious of the time to go to the market place and the need to have better costs and performance than their competitors. Companies no longer believe with blind faith that research organizations are delicate flowers that must not be pressured nor required to justify their existence on a daily basis; nor do they believe all the new technology they need must be developed by their research organizations. In fact, many believe that the chief value of research

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--> organizations is their knowledge about where appropriate new technology might be purchased or about technology that might be developed in new partnerships. For more than a decade, U.S. companies have worked hard to adjust to these new realities. Today, many would say that U.S. companies are ahead of much of their global competition. If so, it is not through brilliance, but because they have responded to a stark need with many years of often painful adjustments. Research organizations are still viewed as vital but in a significantly different way than in the past. Companies expect them to be cost-effective in every sense of the word. In some companies, research organizations have been severely downsized and in some even eliminated. In the latter case, companies believe they can purchase the technology they need to support what they feel are their real strengths, which might be marketing, product design, or manufacturing. The companies that have downsized and reoriented their research organizations and expect these organizations to obtain technology at the lowest possible cost and at the fastest speed. For this reason, companies no longer give unquestioned grant money to universities for good will purposes. Instead they expect quid pro quo arrangements. After their initial shock, universities long accustomed to unrestricted grants view this development as a positive one. It brings university professors and students closer to the real needs of industry and gives universities that had not benefited from grants an opportunity to compete for industry support. Universities today rapidly are becoming integral to many companies' business strategies, and not just in the United States. All over the world, universities and companies are establishing research programs to augment corporate research organizations. Russian, Chinese, and Indian research institutes and universities, for example, have benefited from this new approach. The resulting benefits include access to outstanding research personnel and facilities, lower research costs, greater responsiveness to market needs, and greater knowledge of new markets. But in spite of this increasing trend towards partnerships, usually less than 1 percent of a company's R&D budget is spent at universities. Partnerships represent a potential growth area, provided the universities work diligently to understand business needs and modify their policies appropriately without compromising their fundamental missions. Companies' new approach to technology acquisition is not confined to universities. Partnering is taking many forms. The most common form is partnering with other companies, both large and small. Often large powerful companies with global marketing organizations will collaborate with smaller more entrepreneurial companies to acquire or develop new technology, which they then market for themselves and their partner. In other cases, they collaborate with the smaller specialized companies to obtain fully developed technology, which they license for use in their product lines. There are many variations within this type of partnering, and the results have been very good for

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--> all involved, including fostering rapid growth of whole new industries based on biological and electronics technologies. U.S. companies also are partnering with U.S. national laboratories. For many years, the U.S. Congress has been trying to improve technology transfer between these laboratories and industry. Success has only been apparent in the last five to eight years—since Congress recognized that laboratories and companies must work together on the development of technology, not just pass it over to companies for a royalty or other payment. Furthermore, the collaboration must advance the missions of all the parties involved. Today, national laboratories form partnerships with companies for high-risk research in support of their government missions. Companies are willing to share the costs of this research because they wish to use the resulting technology. In some cases, individual companies form consortia to develop new products. One such collaboration involves the use of high-end super-computers in the design of new tire treads. Others efforts include the work of the semiconductor industry to develop advanced microchip manufacturing processes, collaborations to advance commercialization of high temperature superconductor devices, and exploration of the use of diamond films. Unique Forms of Partnering Some of the more unique forms of partnering to develop high-risk technology are illustrated by Semetech, the Partnership for the Next Generation Vehicle (PNGV), and the U.S. Advanced Battery Consortium (USABC). A brief comment on each follows. Semetech was formed by companies engaged in the manufacture and use of semiconductor devices. These companies were determined not to be shut out of the rapidly growing worldwide markets for semiconductors and related electronic products because of their inability to continue to develop and access state of the art fabrication technology. This also was a concern of the U.S. Department of Defense. A partnership was formed between the government and these progressive companies to raise research funds and sponsor fabrication technology and equipment development that served the U.S. electronics industry. Initially the government and industry each contributed half of the $200 million in annual research funds, but because the partnership has been so successful, enabling U.S. companies to be in the forefront of semiconductor developments and to increase their market share in many key areas of electronics and computing, government support no longer is needed. Semetech was not directed to near-term market needs, but it ensured development of the tools to fabricate devices and systems at a reasonable cost and with specific capabilities. This partnership is an example of companies and the government working together to share the cost of pre-competitive technology development,

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--> the fruits of which the government and companies use to develop competitive offerings. PNGV and USABC are somewhat different from Semetech. The U.S. government, in its role of preventing energy shortages and environmental damage, entered into partnerships with leaders in the U.S. automotive industry to fund high-risk research that would greatly decrease energy utilization of automobiles and reduce their environmental impact. The government provided half of each partnership's budget (tens of millions of dollars annually), but the automotive industry manages each partnership. The likelihood that current automotive technologies will be displaced by technologies developed under these partnerships should be maximized by day-to-day management by the industry that would use the new technologies. Both programs have been praised for their management approaches and technology advancements.2 Lessons Learned There are several lessons to be learned from the experiences of U.S. industry in attempting to improve technology commercialization, including the following: The best modern technology-based businesses succeed in today's marketplace through near-perfect communication and information flows among all branches of the enterprise. R&D personnel must be informed at all times of the business environment and must be included in planning and strategy development. All R&D activities do not have to be under the direct "control" of the business units they serve, but they, like R&D organizations within these units, must be tightly connected to the information flows. Universities receiving support by companies through grants and consultantships must be closely informed about the companies' near-and long-term needs. Any R&D organization that is expected to serve a business must insist that all levels of the organization participate in near-and long-term business planning. Technology for eventual commercialization must be obtained from the best sources. World-class businesses view their R&D organizations as both sources for technology and advisors for technology acquisition. 2   See "Lessons Learned Under the United States Advanced Battery Consortium," Abacus Technology Corporation, November 8, 1993, and the series of biannual evaluations by a National Research Council committee on the progress and management of the PNGV.

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--> World-class businesses understand and focus on their technology needs. They decide which technologies they should own exclusively and developed internally and which they may share and co-develop with others. The focus of R&D management always must be to access technology in the fastest, lowest-cost, and most effective way. Therefore, partnering with others for development of technology should be at the forefront of R&D management interests. Government can and should play a critical role in the development of certain new high-technology areas. It should not hesitate to partner with private industry when a vital industry has become too frail in the world marketplace for the best interests of the country, research serving the long-term interests of the country is too risky for any firm or combination of firms to perform, firms have better facilities and more experience than government laboratories to conduct the research, and the combined effort could result in lower costs and shorter time-frames for effective development. Government should consider allowing industry partners authority to manage joint efforts when the results are to be commercialized. In most cases, government partnerships with industry should involve groups or consortia of companies. Alternatively, provisions should be made to share the fruits of a partnership with all members of an industry without too much delay. Government national laboratories should be encouraged to work jointly with consortia and individual companies in high-risk areas when the research serves the mission of both parties. University relationships with companies should be encouraged to evolve toward quid pro quo partnerships while at the same time protecting the fundamental missions of universities to be a provider of basic research to society. These lessons may be useful when considering ways to improve the connections between Russian universities and institutes and foreign firms and capital sources—connections that could help invigorate the Russian scientific establishment and improve its capability to restructure and rebuild technology-based industries. In the context of technology commercialization, the salient questions are: How can a significantly greater number of collaborative partnerships between Russian universities and institutes and industrial concerns in western countries be initiated? Can recent Russian immigrants living in the United States help initiate such partnerships without compromising their loyalty to their U.S. industry employers? (Many of the larger companies that have established research partnerships with Russian universities and institutes have effectively used their émigrés in these efforts).

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--> How can bilateral collaborations be established more quickly and with less misunderstanding? How can better understanding of western industrial business practices be imparted to Russian collaborators and government officials? How can Russian scientists and engineers more effectively contact Western firms that might benefit from collaborative relationships?