Appendix A
Presentation by Francis Via Director of Contract Research, Akzo Corporate Research1 at the Workshop on Overcoming Barriers to Collaborative Research March 23–24, 1998

I would like to provide a brief overview of an industrial approach for leveraging resources by conducting cooperative research with university and national laboratory partners.

First, let us consider a few general descriptors for research partnerships in the chemical industry: why we do it, what is it we expect to gain from such partnerships, and what industry-wide issues are fostering this approach? Partnerships for research with universities are growing at the rapid rate of nearly 20% a year.

Why is this activity occurring at this advanced stage of development of this industry with such a strong economic foundation and a large influence on the GDP? Furthermore, what are the goals of these programs? To answer these questions, we need to look at the industrial drivers that are impacting research. We will also briefly review the implications for partnerships, and the impediments to progress.

By way of introduction, Akzo Nobel is a multinational corporation with U.S. headquarters in Chicago and the U.S. corporate research center in Dobbs Ferry, New York, just north of New York City. World headquarters are in the

1  

This is an edited transcript of the presentation. Current address: Francis A. Via, Manager, Catalysis Program, Chemical Process Technology Laboratory, GE Corporate Research and Development, CEB-423, P.O. Box 8, Schenectady NY 12301. 518-387-5490, francis.via@crd.ge.com.



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Overcoming Barriers to Collaborative Research: Report of a Workshop Appendix A Presentation by Francis Via Director of Contract Research, Akzo Corporate Research1 at the Workshop on Overcoming Barriers to Collaborative Research March 23–24, 1998 I would like to provide a brief overview of an industrial approach for leveraging resources by conducting cooperative research with university and national laboratory partners. First, let us consider a few general descriptors for research partnerships in the chemical industry: why we do it, what is it we expect to gain from such partnerships, and what industry-wide issues are fostering this approach? Partnerships for research with universities are growing at the rapid rate of nearly 20% a year. Why is this activity occurring at this advanced stage of development of this industry with such a strong economic foundation and a large influence on the GDP? Furthermore, what are the goals of these programs? To answer these questions, we need to look at the industrial drivers that are impacting research. We will also briefly review the implications for partnerships, and the impediments to progress. By way of introduction, Akzo Nobel is a multinational corporation with U.S. headquarters in Chicago and the U.S. corporate research center in Dobbs Ferry, New York, just north of New York City. World headquarters are in the 1   This is an edited transcript of the presentation. Current address: Francis A. Via, Manager, Catalysis Program, Chemical Process Technology Laboratory, GE Corporate Research and Development, CEB-423, P.O. Box 8, Schenectady NY 12301. 518-387-5490, francis.via@crd.ge.com.

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Overcoming Barriers to Collaborative Research: Report of a Workshop Netherlands. As with most multinational corporations, we are proud of our American citizenship. Most every chemical sold in the United States is manufactured in the United States, although there are a few exceptions. Akzo Nobel is a net exporter of chemicals from the United States, and we are pleased to emphasize this point each time we negotiate a cooperative program with a national laboratory or government agency. Furthermore, relative to globalization of the chemical industry, Department of Commerce data show that one-half of the 1 million U.S. employees in the chemical industry are employed by companies with foreign ownership. This impact is greater than is commonly perceived. We certainly have achieved a globalized economy for the chemical industry, and that is now placing greater impact on research strategy. The funding of industrial research is analogous to the employment situation. About 45% of all the chemical industry research conducted in the United States is funded by companies with foreign ownership. This commitment is a very strong testament to the value of the U.S. research infrastructure. Global corporations have an active presence in the United States not only for the markets, which were the initial primary driver, but also for the research infrastructure; the students, consultants, universities, national labs, and so forth. What are the industrial drivers that are now affecting research investments? Strategies for research investments are similar to those of other investments for manufacturing, distribution, and marketing. The principal metric is risk versus return for our technology-intensive industry. Furthermore, the perception commonly accepted by the financial community that the chemical industry offers only modest growth potential has impacted research investments. This relative assessment has had a profound impact on the type of research that is funded. Globalization is a dominant driver and, as a result, there are no safe geographic or product niches. This situation is similar to the automobile industry. The chemical industry is experiencing intense global competition. For example, when I first started my research career more than 20 years ago, there were many attractive specialty markets, for example, flame-retardant materials, specialty surfactants, functional lubricants, and so forth. For each of these markets there were essentially three or four major manufacturers. One company might gain nearly 35–45% of the market. The other two or three would split the rest. Thus, there were attractive margins, and you could conduct research in a fashion that would reflect those margins. Now, there are nearly 14 suppliers of some of these specialty chemicals and that

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Overcoming Barriers to Collaborative Research: Report of a Workshop competitive situation is fostering a shorter-term metric for the accountability of research. The equity markets represent another driver. There is a perception that Wall Street is only looking for quarterly returns. In reality, they are looking for balance to see that you are really protecting your long-term profitability and sustainability, while focusing on short-term returns. This influence of Wall Street is reflected in shorter-term approaches to research by the chemical industry. Risk, liability, and regulations are also influencing the type of research being pursued. As a result, industrial research in the chemical industry has taken a defensive posture. Changes in the stability of the organization, brought about by downsizing, right sizing, mergers, and other trends, have also pushed middle managers and middle-level vice-presidents to become more risk averse than their predecessors. So, how have all of these factors influenced chemical research, and why do we need partnerships? Most significantly, central research organizations have been shrinking for many U.S. manufacturing industries—chemistry, in particular. There has been a greater customer focus. In fact, if you walk through our laboratories, at times it will look like it is only partially occupied because many of our scientists are visiting customers. An inspection of our research travel records will show frequent trips to customer research sites. Thus, with a generally shrinking R&D budget, a strong customer focus, and the need to lower manufacturing costs and ensure environmental compatibility, a new role for our central corporate research is emerging. That new role is to help the corporation define its research strategy and identify new lower-risk approaches to innovation. We are actively leveraging resources to get more with less, as well as monitoring and assessing new emerging technology. It is surprising how widely recognized this trend is becoming, not just in industry publications, such as Chemical and Engineering News, but even in the general media. To address these issues and to satisfy it's internal customers, industrial research is becoming more receptive to external collaboration, which naturally follows from wanting to reduce risk and from the need to do more with less. What do we expect to gain from partnerships? As we discussed in our breakout sessions yesterday we are looking for knowledge and concepts from high-risk exploratory new technology areas that can impact core businesses. It is more difficult to justify that type of research with today's ex-

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Overcoming Barriers to Collaborative Research: Report of a Workshop pected return metric for internal industrial R&D. Collaboration can bring new and different perspectives, as well as increase R&D flexibility. Industrial research managers and scientists need to explore new technologies that they may not have in-house, and if this new approach does not work out they must avoid being saddled with high risks and responsibilities. Other motivations for collaboration are to build long-term associations and motivate internal scientists. Scientists that spend a large portion of their time working on these short-or intermediate-term programs are highly motivated by the opportunity to explore new knowledge, new concepts, and longer-range, game-changing issues, especially with world-leading research teams. What are the impediments that we see? Again, we have discussed these yesterday. At the top of the list is trust. When I shared my list of issues with participants at lunch yesterday, there was some concern that trust is too obvious and too simplistic to identify. From our experience, it remains one of the key issues. It is essential to find a partner who we can work with effectively at a university, national lab, or another company. At all costs, we want to avoid resorting to legal remedies. After the issue of trust, key factors that act as barriers to collaborative research include publication issues, intellectual property, timing, and funding. One of our ongoing projects illustrates the intellectual property issue. This collaboration involved several universities and national laboratories. The goal of this program is to eliminate or remove chromium from anti-corrosion coatings. While this goal has been achieved for many products, the coatings industry is still seeking an anti-corrosion additive for some industrial paints to make them more environmentally friendly and to make their substrates more recyclable. We started a research program to identify new conductive polymers or conjugated polymers that could replace metal additives in these coatings systems. The research team started with an agreement with NASA through the Kennedy Space Center. As with all programs, we try to link our corporate research program with a business unit program. Thus we combined the research efforts of Akzo Nobel's central research in Dobbs Ferry, New York, with the Coatings Research Center in Columbus, Ohio, and Automotive Coatings Products in Troy, Michigan. The Materials Science and Technology Division of the Los Alamos National Laboratory was a key participant and prepared initial samples for evaluation. We then added researchers at Drexel University to look at the effects of molecular weight and changing structure, and at Polytechnic

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Overcoming Barriers to Collaborative Research: Report of a Workshop University for critical organic synthesis to look at monomers and dispersants. The team grew with the addition of Ohio State for mechanistic characterization. The Navy research group in Orlando joined to help with the evaluation and to address their special interests. This multiplicity of players was a result of networking and identifying growing needs. How do you trace the actual inventorship in these activities? Akzo Nobel together with each partner established a research contract clearly indicating intellectual property ownership by the inventing institution or institutions and for joint inventions, of which there are several. The contracts also indicated that the total royalty we could possibly afford for a paint product was about 1–2% and each institution should be prepared to share this total for multiple ownership. The competitive markets of industrial coatings limit margins that require all participants, including the industry partner, to review and approve modest royalties in return for a higher probability of success and a potential for a continued research program. In the initial program phase, our team linkage was rather weak. Everyone had a different opinion on approaches and strategy. It required more than one year to developing a mutual understanding and an effective team. Patience and a personal commitment from each member are essential components of successful research partnerships. Thus collaboration will likely face many challenges with even the best of partnerships. Our team members at universities work in a generally defined area, with a high degree of freedom and accountability. Frequently, our partners develop a strong desire to race down the line to issues close to product development, an area outside their expertise. Product development research often appears rather straightforward and a fertile area for intellectual property development. Since it is commonly perceived that this area is highly profitable, university researchers may feel limited when industry partners encourage continued exploratory research to establish an understanding and backup candidates. In most cases the industry partner brings a wealth of capabilities for advanced product development related to their core technology and cannot commonly share this information. Industry is best suited to take a molecular concept and carry it through the paces of a product development program. What are the other key impediments? Let's revisit the issue of intellectual property and share successful practices. Clearly, Akzo Nobel, like most industry partners, understands that universities are the owners of the technology discovered in their laboratories by students and faculty members. We

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Overcoming Barriers to Collaborative Research: Report of a Workshop have been successfully operating with that basic understanding for more than 200 programs. Akzo Nobel will cover the cost of protecting intellectual property. In fact, we frequently have our attorneys write the patents for the university. Under the contract we want to write the best possible patent, as both partners will benefit over the long run from this practice. In return for funding the program and covering the cost for securing and protecting intellectual property we request the right of first refusal for an exclusive license, without a time limit and without limitations for the field of use in chemistry, as long as we are funding the program. Secondly, the contract contains provisions to negotiate a royalty-bearing license. A ceiling is placed on the royalty rate for the designated field of use. In some cases, this ceiling can become a controversial part of the contract. A ceiling is essential as many programs are transferred to a business team during the later stages of the university research. This successful transfer is based on a preliminary economic assessment that includes a royalty accounting. Without this transfer to a business unit, the entire concept of external research will quickly come into question. Timing is also important. We usually try to fund a project for three years, and frequently renew it for one additional cycle. After the university program is completed, we may seek an extension of the right of first refusal to continue internal developmental work. As the technology approaches commercial development, negotiations for royalty payments are finalized according to provisions of the research contract. In situations in which Akzo Nobel chooses not to continue commercial development, our rights to this technology are relinquished to the university. The next area of potential contention is publications. This can be rather straightforward. The industry partner requires three to six months to review the publication and to initiate any justifiable patent applications. It is important to appreciate that this rapid approach represents a sacrifice for the chemical industry sponsor. In our industry, one patent rarely constitutes an innovation for a profitable product. Many times, any early publication can alert competitors to a new fertile area of research. For a comparable internal research program, an initial lead can be protected from public disclosure for several years to expand the technology and to develop a strong family of patents. Industry recognizes the need for rapid publication by the university partner with a review system as described above. Delaying of publication for review will provide an 18-month lead for the industry partner. A growing number of universities also wish to protect intellectual property, and

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Overcoming Barriers to Collaborative Research: Report of a Workshop consequently the industry partner is provided additional development time, on a case-by-case basis. Mutual trust is critical at this phase. For the next issue—confidential information and the university environment—we do not commonly include special confidentiality clauses in most of our contracts. As a practice, we do not share confidential information with the university and the professor. With collaborative programs, we are seeking new and different technology. Thus, details of our current technology are not relevant. There are some exceptions, for example, in the characterization of new compounds or catalysts with state-of-the-art equipment, such as the synchrotron light source, to learn details of atomic structure. In those rare cases, we will provide a sample of one of our refinery catalysts under a secrecy agreement with provisions for returning the sample. The next issue I would like to review today is funding. As I mentioned, we look to fund collaborative research activities for at least two to three years. In addition, overhead is an essential component of a payment agreement. Your partner maintains a research facility that must include essentials like heat and ventilation, hoods, chemicals, communications capabilities, and so forth. We assume that part of the overhead is committed to these essentials. For program management, we assign a scientist to each project who is identified as the technical liaison. That scientist is working on a similar or related project internally. The technical liaison monitors progress and provides guidance. Although formal review meetings are scheduled every six months, the technical liaison maintains relatively close contact by visiting the partner every 6–12 weeks and through more frequent conference calls when warranted. In addition, the program generally requires external information to guide and help it along. We find today's principal investigators at universities are highly taxed with a variety of responsibilities. So we provide guidance to the patent literature and communicate on other issues more directly with the students. So far this morning, we have been focusing on one type of partnership—concept development research at the early stages of the project. We are now seeking ways to start using partnerships with universities and national laboratories in areas closer to product development to move ideas to the market more quickly. We have reservations about this approach, as it appears to be incompatible with the scope and charter of a university. There is a need to move more quickly to the market with new concepts. We are continuing to experiment with several strategies to achieve this goal. Of

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Overcoming Barriers to Collaborative Research: Report of a Workshop course, the topics and scientists must be amenable to this objective, such as catalysis research at universities and national laboratories. Faculty consulting helps build long-term relationships and trust while expanding our knowledge base. As you well know, from your own experience and from the example we used with the NASA program, we have a number of professors who continue to serve as consultants and are part of our ''technical family." As is common practice, we share inside results to gain the full benefit of their insight, knowledge, and experience. The consultant does not need to share this information with the graduate students, even when involved in a related cooperative program, as the university targets are defined to address new or different technology approaches to the same target. For these cases standard consulting agreements are used. The key focus is "people"—getting the right people together at the right time to accelerate technology development. Generally, the chemical industry is becoming more receptive to company cooperative research partnerships in order to reduce risk and leverage resources and capabilities. In fact, several government agencies, such as National Institute of Standards and Technology in its Advanced Technology Program (ATP), are serving to further promote this trend. Joint ventures, mergers, and business alliances are not uncommon in the chemical industry. This activity is frequently set up between customers and suppliers and in special cases is spreading to include potential competitors. Another challenge for research partnerships is maintaining productivity over the life of the project. When we are considering launching a project, we invite a potential partner—professors—to the research center for a day of discussions and a seminar. This activity is designed to help each partner determine the opportunities, strengths, and challenges of an alliance. We do not use a competitive approach at this stage. If both partners believe a win-win situation is likely, we request a formal proposal from the professor. More often than not, the proposal will need further development. After a few iterations, the partners have learned to work together and appreciate their relative contributions. Akzo Nobel will usually fund about 70% of proposals personally requested after a site visit. There are some delays for contract negotiations, discussions, and proposal details. So, by the time the agreement is signed, we hit the ground running. In some cases our partners have actually even started the work and productivity rises very quickly. One sensitive issue with research partnerships that we have been attempting to address is that productivity appears to drop about midway through

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Overcoming Barriers to Collaborative Research: Report of a Workshop a program. This trend, for the most part, is independent of the program length—one, two, or three years. At this midway point, the partner must begin searching for funding to continue after our agreement. Akzo Nobel has frequently renewed programs for a second term, but nonetheless as the departure or termination time approaches, each partner must plan to move on. This activity has a strong influence on research productivity. Thus, each program should be initiated with a clear exit plan to help minimize the reduced productivity in the later stages. As indicated above, both partners need to benefit for this trend to grow. On occasion the university team can benefit from industrial guidance into a new application area. Our program on conductive polymers exposed university colleagues to anti-corrosion technology. This knowledge base served our partners well and after the external part of the program was completed they successfully secured grants from the Air Force and NSF that allowed continuation of fundamental studies, while addressing the agencies' needs. How should we as a nation sustain these efforts? In the long run, the university and national lab researchers must continue to develop fundamental knowledge and educate students. As a research partner, we participate in the funding and guiding process for a fixed period—one, two, three or six years. Without an exit plan, academic or national laboratory colleagues may become disappointed with the industrial partner. From the industrial point of view, another barrier to partnerships is the funding uncertainty and multi-year changes of direction that arise from the cumbersome budgeting process of the national laboratories. We must be able to develop a better way to work with the outstanding scientists and facilities at the national laboratories. The next issue I want to raise is government technology challenges. We really think partnerships are required for both science and technology. This goal is the orientation of ATP. The government should be supporting both basic science and a balanced portfolio of programs in areas of national needs. We are very interested in the new Vision 2020 Project developed by the Office of Industrial Technology at the Department of Energy, working together with the steel, the aluminum, the pulp and paper, and the chemicals industries. This activity involves establishing priorities with appropriate representatives of the industry and then funding programs in both science and technology in the designated areas. Education issues are, without question, among the most critical for our

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Overcoming Barriers to Collaborative Research: Report of a Workshop nation to achieve sustainable economic growth in a technology-intensive global market. Partnerships offer possibilities for expanded education via coop programs in industrial laboratories. Improved recruiting is also a benefit of partnerships. For a final note, let us return to the issue of globalization. Indeed, today we are all subject of and benefit from global manufacturing and marketing, and now also research. We have programs around the world. During the project on coatings cited several times in this presentation, we needed to have access to one of the user facilities at a national laboratory. At the time, access was difficult, so our university partner gained entrance to a world-class facility at Lund, Sweden. In other programs, we have used laboratories in Germany, Russia, and China for research programs. We are, indeed, in the mist of a paradigm shift in both research partnerships and global research.