Government-Industry Joint R&D Ventures: Bridging the Gap Between the Laboratory and the Marketplace
Lura J. Powell
National Institute of Standards and Technology
My discussion focuses on the Advanced Technology Program (ATP), as well as many of the other federal partnering activities that have not yet been mentioned at this workshop.
I want to start by emphasizing that the ATP is only one of the four major components of the National Institute of Standards and Technology (NIST). The core of NIST is its laboratories. NIST has a substantial chemistry presence throughout its laboratories, including the Chemical Science and Technology Laboratory, Materials Science Engineering Laboratory, Physics Laboratory, and Building and Fire Research Laboratory. The other two components of NIST are the Manufacturing Extension Program (MEP) discussed below and the Baldridge Quality Program.
As discussed by Christopher Hill, significant legislation was passed during the 1980s that encouraged partnering. Suddenly all of the federal labs were faced with a mandate to partner. Although this notably changed things for much of the federal government, at NIST it was business as usual. When NIST was created as the National Bureau of Standards (NBS) back in 1901, it was created with industry as the principal customer. It is the only federal laboratory with this mandate in the original legislation. When I started working for NBS in 1972, one of the first things I learned was that industry was my prime customer. From its earliest days, NBS had extensive collaborations with industry. And, in fact, before cooperative research and development agreements (CRADAs) linked industry and government in formal agreements, NBS actually had industrial research associate agreements. These agreements were executed when industry representatives would come to NBS to conduct research for a few months or more. For NBS, the biggest benefits of the technology transfer and partnership legislation came from the Freedom of Information Act exclusions, which facilitated joint research with industry.
The Need for Partnerships
One of the messages I want to convey is how broadly partnerships have permeated the R&D enterprise. From my perspective, when looking across the R&D enterprise and at the varying R&D models, the critically important element is the leverage that partnerships can provide. Partnerships
extend beyond industry and government, to include multiple companies (of varying sizes) working together with the academic community, the national laboratory system, and not-for-profit organizations.
Through this workshop, we have heard a lot about the R&D challenges of the 21st century. We know the effects that global competition has had on the U.S. R&D enterprise. We heard that we no longer have the industrial research environment of a few decades ago. Industrial R&D has become increasingly less long-term and much more directed. Industry has less flexibility to do the type of innovative research that resulted in many of the broadly applicable innovations we enjoy today. Thus, the real challenge for the 21 st century is rapidly commercializing the fundamental innovations created in the universities and national labs. However, between the two ends of this spectrum there is a large gap, where an enormous amount of early-stage technology development work still needs to be done.
How do we bridge that gap? This is an important question, because there are few appropriate funding sources available. Although historically there has been a broad acceptance of federal funding for basic research, some policymakers question whether the government should fund industry to conduct R&D. From my perspective, I definitely see a role for government in filling this gap.
Many early-stage technologies are, by their nature, broadly enabling. Therefore, companies would not necessarily be able to capture all of the R&D benefits themselves if they were to invest in the research. In this competitive climate, with limited R&D budgets, companies focus strictly on what is going to benefit them and push them ahead of their competitors. Broadly enabling innovations are not likely to make the final cut of priority investments.
I am often told by industry that many of the ATP project ideas have been sitting on the back burner at the company for some time. Often, if a project was a priority of an individual researcher or group, it might have been bootstrapped along. This is exactly where ATP fits in, filling the gap. ATP is not the only government program that could fill this void, but it is the only one that sees filling this void as its primary mission.
I have been talking about the R&D process as a sort of continuum and have tried to capture this in Figure 9.1. ATP bridges that middle range of technology development. A number of ATP's projects still have some basic research components to complete when funding begins. Then the funding is halted at the point where the company has a prototype—ATP does not pay for product development or commercialization. The companies have to fund the last phase of manufacturing and commercialization on their own or seek funding from alternative sources.
Bridging the Gap
I believe that government-industry partnerships are one way to bridge the gap. Not only can they help to address the funding issues that I mentioned above, but they can also tackle another R&D challenge: the increasing need for interdisciplinary expertise. Successful R&D requires broad partnerships and broad expertise. At ATP, for example, there has been a great increase in university involvement. We are also seeing an increase in the number of companies working together in partnerships. Often, a company will get an award from the ATP, and it will subcontract a portion of the R&D to another company, a university, or a national laboratory. Although ATP projects operate under a number of different models, each still needs a wealth of expertise to complete the research. One company may be able to do it alone, but to truly accelerate the development of new technologies, this collaboration is crucial.
Partnerships help to spread the risk, and ATP helps by buying down the risk. Through cost sharing, a company can reduce the risk of its investment in what it considers to be a not-yet-possible technology—those technologies that look promising, but might not ever emerge.
From our perspective, the major benefit of cost sharing the research is that the government gets to leverage the enabling piece of the R&D—there has to be something in it for the taxpayer. One of ATP's key criteria is that the project will provide an economic benefit. Foremost for ATP is how the research will broadly benefit and bring economic value to the United States. Below are some examples of ATP projects that are doing just that.
Federal Partnering Programs
Before I turn my focus to ATP, let me first talk about some of the other federal partnering programs. There are a number of different partnering modes that are used at NIST. Other speakers at this workshop have discussed CRADAs; NIST does CRADAs somewhat differently. NIST has never had a "pot of money" that was set aside for partnering with industry. Instead, when companies have worked with NIST either individually or as part of a consortium, they have provided funding, a piece of equipment, or a researcher, while NIST provided the in-kind R&D expertise.
There are many other federal partnership programs besides CRADAs. The Dual-Use Applications Program (DUAP) is one example. It is administered by the Army, Navy, Air Force, DARPA, and the Director of Defense Research and Engineering. Christopher Hill discussed the rise and demise of the Technology Reinvestment Project (TRP). The DUAP is not a replacement for the TRP. Based on everything I have heard about it, it is much more applied than TRP. It began in 1997 with the mission to prototype and demonstrate new approaches for leveraging commercial research, technology, products, and processes into military systems. The concept is to take civilian technologies, products, and processes and turn them toward military use.
The Small Business Innovation Research (SBIR) program and the Small Business Technology Transfer Program (STTR) were developed during the 1980s when the focus was on collaboration. The SBIR program was created in 1982 by the Small Business Innovation Development Act to help small companies—defined as 500 or fewer employees—advance their innovative ideas and support their research that could lead to significant commercialization and public benefit if successful. To fund the SBIR program, a percentage of each agency's total extramural R&D dollars is set aside. Currently, roughly 2.5 percent of the extramural proceeds are used. In the case of the ATP, this amounts to about $5 million that goes to support NIST's SBIR program.
Somewhat more recently, the STTR came into existence to encourage technology transfer through cooperative research among small business concerns and research institutions. Currently, there are about five agencies that participate in the STTR program with the goal of promoting collaboration. The program requires a small business to partner with a not-for-profit organization, usually universities.
Over the years, NIST has tried some rather innovative partnership programs. The first was the Joint Institute Laboratory for Astrophysics (JILA), and the second, modeled after JILA, was the Center for Advanced Research in Biotechnology (CARB). JILA was created as a joint research initiative in the 1960s between NBS and the University of Colorado. It has developed into a wonderful collaboration, producing a lot of outstanding, award-winning, and internationally recognized research. Perhaps most importantly, they have incorporated industry collaboration. JILA is truly one of those innovative centers where a university and government partnership brings industry in as a third partner, therefore increasing its impact. Half of the principal investigators from JILA work for NIST, the other half are professors at the University of Colorado. JILA was so successful in Colorado that NIST decided to duplicate it in Maryland.
CARB was established in 1986. It was patterned directly on JILA; half of the principal investigators work for the University of Maryland Biotechnology Institute and the other half are staff of the NIST Biotechnology Division. It is truly a wonderful collaboration. In both of these organizations the collaborations work smoothly. In fact, the university and government scientists interact so freely, that I would challenge anyone to walk into CARB, talk to people, and then try to figure out which organization they belong to. At CARB, once again, industry researchers come in and take advantage of the facility. It is seamless. It provides a remarkable leverage for research dollars. When Rita Colwell was still head of the Maryland Biotechnology Institute and I was head of the NIST Biotechnology Division, we used to call CARB the research paradigm for the future. It has been a tremendous opportunity for the academic institutions, the agency, and industry.
In addition to these programs, there is also the NIST MEP. When the Competitiveness Act of 1988 was passed, the name of the National Bureau of Standards was changed to the National Institute of Standards and Technology, and the ATP and MEP were established as programs. MEP does not conduct R&D, but it is a major partnership program. The MEP is a nationwide network of more than 70 not-for-profit centers throughout the United States, with at least one in every state. MEP's mission is to disseminate manufacturing practices to small- and medium-sized manufacturers across the country. This is a similar concept to the agriculture extension service, disseminating technology broadly through a series of centers. In fact, we are currently exploring a MEP-ATP partnership. The ATP has concluded a number of projects, many of which developed manufacturing technologies. We are working with the MEP to develop a pilot program, which would take some of the manufacturing technologies developed under the ATP to see if they can be effectively diffused through the MEP centers to small manufacturing enterprises.
Partnerships with the Advanced Technology Program
Now, let me turn my focus back to the ATP. ATP's mission is to accelerate the development of innovative technologies through partnerships with the private sector. It is not involved with incremental technologies, but rather technologies that offer a leap forward—those that are path breaking. We accomplish this through partnerships with the private sector. Industry is the primary partner, but as I mentioned above, we have broad participation from other R&D communities as well. This being said, the bottom line for the ATP remains whether the research provides a broad national benefit. Therefore, each project is evaluated based on how the R&D will bring economic benefits to the United States.
ATP funds all areas of technology, and across the breadth of the technologies that we fund, there is a tremendous amount of chemistry. About half of the projects that were funded in microelectronics manufacturing last September had significant chemistry and materials science components. Some of the companies represented at this workshop are participating in ATP projects.
It is an exciting time at ATP. We are about to celebrate our tenth anniversary. To date, we have funded more than 400 projects with nearly 2,000 participants. We have over 1,000 participants, who participate as either principal awardees or joint venture partners. We also have nearly 1,000 subcontractors. It is easy to see by these numbers that we value and encourage partnerships under this program.
ATP has funded nearly $3 billion of R&D. A certain amount of that research is finished, but there is still roughly $2 billion ongoing. For each project, ATP provides half of the money, and half comes from industry. The research is conducted and managed by industry. More than 50 percent of our awardees are small businesses, and that number has been increasing. Although much of the research is done in industrial laboratories, a significant portion is done in universities.
Roughly 10 percent of the funding supports university research. There are 125 universities that participate as subcontractors or joint venture partners on ATP projects. We also have extensive national laboratory involvement, led by participation by Sandia and Oak Ridge. I have been encouraging the other national labs to do the same, because I believe that this type of collaboration will spark earlier stage technology development. I want to see more universities and national labs linking proactively with companies at an early stage—when companies might be more inclined to form partnerships that help to put the United States in a more competitive position.
The 1999 ATP competition just closed. When the awards are announced in late summer, the ATP will be launching approximately $350 million in new R&D. Hopefully, next year this amount will be a little higher. So I encourage you to approach us with your ideas. One change we have made this year is the acceptance of preproposals year round. We hope this process will reduce the cost and risk to companies of applying to ATP.1
Measuring the success of the ATP is very important to us. ATP has an outstanding team of economists who are helping to build a strong story of ATP success. In fact, we just released a status report of the first 38 completed ATP projects, Performance of Completed Projects: Status Report Number 1.2 The status report identified seven projects as potential home runs. When I identify a project as a home run, it must not only have a product in the marketplace, it must also offer big economic benefits. In fact, the benefits from three of these initial projects are projected to more than exceed the entire investment in ATP to date. Two of them are in the biological sciences, but one is in automotive
Further details are available on the ATP Web site at <http://www.atp.nist.gov/>.
William F. Long, Performance of Completed Projects: Status Report Number 1, NIST Special Publication 950-1 (Washington, D.C.: U.S. Government Printing Office, 1999).
process control. So it is not just the biological sciences that get the attention and have the potential for high benefits.
One small company, Engineering Animation, a software algorithm development company, came to us with only 20 employees in 1991. They now have over 900 employees and have developed software that allows medical students to study the human body in three dimensions. They then turned around and used that same base technology to create the animation for interactive games and movies such as Small Soldiers and Animaniacs . This was a huge home run, with broad applications.
Not all of the projects included in the status report were successes; 7 of these first 38 look like they are total failures. This is not a surprise because we fund high-risk R&D. In fact, we expect that some ATP projects will fail. When all is said and done, these projects are unlikely to contribute much to either the technical community or the economy. There are a variety of reasons for this. In some cases the projects did not finish the work. In other cases, management changed, the company went bankrupt, or the research did not yield the anticipated results.
Finally, there is a group of projects in the middle. Many of these projects could end up being real successes, but the jury is still out. Some of them have products in the market and others have linkages with other companies that could lead to applications; but the true success of the project has yet to be fully revealed. These fall into a "watch and see" category. With a program like the ATP, you expect to see this mixture of projects with moderate benefits as well as projects that are going to be real home runs. We do not expect them all to be home runs; but only by funding a large number of the truly innovative ideas will we ever see the home runs.
When thinking about potential ATP projects, think about what you will not do on your own. ATP is looking for are these really innovative, high-risk ideas. If it looks like the project could receive funding elsewhere, then we are not going to fund it.
We are getting a lot of positive feedback from our partners. "[Our] members regard an ATP award as the gold medal in the research Olympics." This quote from the Ohio Aerospace Institute (OAI) is not only wonderful because of how it captures the prestige felt by ATP participants, but also because it allows me to highlight the fact that we have a number of not-for-profit companies that successfully lead joint ventures. OAI is one of them and so is the National Center for Manufacturing Sciences, which Christopher Hill mentioned in his presentation.
Having not-for-profit companies leading joint ventures works very well. Not only do they know how to attract different partners, but they also know how to keep them together and find new partners when necessary.
ATP stimulates collaborations. We have conducted many surveys with ATP participants over the years. A majority of participants have told us that collaborations helped them achieve their project goals. That includes collaboration with either a subcontractor or joint venture partner. We also hear that ATP is greatly responsible for stimulating these collaborations, a fact that makes us very happy. Even at the height of the ATP debate in the mid-1990s, Congress and the General Accounting Office gave us credit for our role in stimulating collaborations and joint ventures.
One of the main benefits highlighted by our companies is the ability to complete complex projects by obtaining the necessary interdisciplinary R&D expertise. These research relationships are credited with stimulating the creative thinking necessary to reach project goals. Also highlighted was the acceleration of entry into the marketplace facilitated by collaboration. Most of our companies have seen a two-year or more acceleration in the marketplace, essentially saving time by dedicating a significant number of people with varying skills to work on the project. Collaboration has also helped to better identify customers' needs. Because these partnerships often include companies from a wide range of industries, it is almost like having an entrance to many different markets initially.
A very exciting outcome emerging from these partnerships is the future collaborations that they are stimulating. Individuals who have collaborated for the very first time under the ATP continue to do so and have a greater tendency to collaborate in the future. We are encouraging this collaboration and would like to see more of it in our projects.
Last year at our first national meeting we made stimulating collaborations a goal. We brought together potential proposers and past awardees to attend our technical and proposal workshops. We also featured an exhibit in which ATP participants could display and talk about their technologies. Following the meeting, the exhibitors shared with me how the conference had provided them with the opportunity to sell to people they never would have marketed to before. This type of networking really excited us. So at the 1999 national meeting, which will be held in San Jose in mid-November, we are doing everything on a much grander scale, including the exhibits.
ATP has a long history in holding technical workshops, particularly in the days of focused programs. Many chemists and chemical engineers have attended workshops in the chemical catalysis and separations areas. One of the first workshops that I attended as the ATP director was in the composites field. At the workshop, two of the ATP awardees that made presentations were Strongwell Corporation and Ebert Composites. Ebert Composites has developed a real innovation for making very large transmission towers out of composite materials, and Strongwell has developed technologies to make strong and durable composite bridge supports for transportation infrastructure. These two companies met for the first time at the meeting. Since that first meeting, they have formed a whole new company together. It is these and other collaborations that we try to foster, even beyond the ATP.
Although we do not have many completed projects from the chemistry field, we do have a significant number that are under way. One is a breakthrough process for direct oxidation of propylene to propylene oxide, led by the Dow Chemical Company. Another involves continuous biocatalytic systems for production of chemicals for renewable resources, involving collaboration among Genencor, Eastman Chemical, and Argonne National Laboratory. Yet another involves biosynthesis of monomers, led by General Electric. These are just a few of the projects; there are many more and all of them can be found on our Web site.
A recently completed project is one that involves Air Products and Chemicals, Inc. It is a joint venture with Toromont Process Systems, Inc., which developed a closed-cycle refrigeration technology based on air. It is a novel system that has gone through a successful test at Kodak and now looks as if it is poised for positive sales and broad impacts. Although the results are so recent that we have not published a success story yet, we are in the process of putting one together.
We have a lot of success stories like this one. I have a couple of other successes that I want to go over quickly. Although they are not necessarily from the chemical industry, I think they will give you an idea of some of the things that we fund and look for.
Back in 1991, a consortium of the six top printed wiring board companies along with Sandia approached ATP for funds, mainly because the U.S. printed wiring board industry was in danger of disappearing. It was moving offshore, and the United States was in danger of losing this critical technology. At the time, the U.S. market share had dropped from 40 percent down into the low twenties. These companies partnered to tackle a suite of 64 projects. Many of these projects involved chemistry: materials science, resins, etc. However, a large number centered on improving manufacturing capabilities. The collaboration in this project was highly beneficial. The National Center for Manufacturing Sciences (NCMS) has estimated that without the ATP funding, about half of these 64 projects would never have been done and the other half would have been bootstrapped along and done at a slower pace. By doing the R&D jointly, the industry saved more than $35 million in research dollars. Now the U.S. printed wiring board industry is making a comeback, with its market share rising from the low twenties
back up into the thirties. NCMS, which was responsible for pulling the industry together, has given ATP, and the researchers involved, the credit for saving the 200,000 jobs in this country that would have been lost if the printed wiring board industry had moved offshore. Most importantly, this group of six companies, through government cost sharing, brought an industry back.
The final success I wanted to share with you is one of the home runs from the status report mentioned above. It was done by a group of small- and medium-sized supplier chain manufacturers called the Auto Body Consortium. The Auto Body Consortium also partnered with two universities, University of Michigan and Wayne State University, and two of the big three auto manufacturers, General Motors and Chrysler. As it turns out, the "brains" of the project was a mechanical engineering professor at the University of Michigan. He had the original inspiration, grabbed some partners, and said, "I' ve got this neat idea." What followed stemmed from this "neat idea.''
For this discussion, this project offers three central messages. First of all, the technology was very exciting and leading edge. When the consortium first started this project in the early 1990s, the U.S. automobile manufacturing industry was drifting further and further behind its competitors with respect to the dimensional fit and finish of automobile parts. To combat this problem, the Auto Body Consortium developed a novel process navigational system and series of sensing technologies. This system takes the automobile from design all the way through manufacture, allowing the manufacturers to get the fit and finish down to less than 2 millimeters—a significant advance. Furthermore, the technology will also help them pursue even tighter tolerances in the future.
A second point, particularly of interest to the ATP, is that the technology is broadly enabling. The same technology used for the automobile industry is being now diffused to the furniture and appliance industries.
The last point I want to make is for those small- and medium-sized companies that have trouble with 50–50 cost share. General Motors and Chrysler basically paid the full freight; they did not take any ATP money to cover their costs, and they covered the majority of cost sharing for the project. Now they are reaping the benefits. This technology is in more than 20 plants across the United States. In fact, the Chrysler Concord that was redesigned over a year ago incorporates this technology.
I want to close with a quote that is about five years old, but still extremely valid today:
The United States has unparalleled resources of science and technology. Its industrial research capability, universities, nonprofit research institutions, and federal laboratories are great national treasures. But in a time of severe financial constraints and heightened international competition, the Nation must maximize its return on those assets . . . . The time is ripe for bold steps to capitalize on the promise of partnership.3
The United States has tremendous resources for science and technology, and, sadly, our financial constraints are not going to get any easier, so the time is ripe for partnering. I really believe partnerships are the wave of the future. I encourage each of you to partner, and where it makes sense, partner with the government, with the ATP.
Fritz Kokesh, Massachusetts Institute of Technology: With all of the success stories that you describe, is there not enough information available to put to rest the corporate welfare argument?
Lura Powell: It has been put to rest to a great extent. About a month ago, under the auspices of the National Research Council, we had a meeting specifically on the ATP. Based on the comments, I was pleased, as ATP director, to hear that the controversy about whether ATP should exist or not has basically disappeared. Instead, the panel discussion focused on how big the program should become, how fast it should grow—budget caps being what they are.
Christopher Hill, George Mason University: I agree completely.
Fritz Kokesh: Just to follow up, I hope the data you speak of will be publicized because, in contrast to some other things that we have talked about at this workshop, the ATP has had enormous success. At the same time, you indicate that there is a change in the wind. Do you understand well enough the reasons why the ATP has been successful to predict the effects of the change? Have you started to tweak the system? Do you understand why the program has allowed groups to work together in the ways that they have?
Lura Powell: Yes, we are beginning to, although I am unsure that we understand all of it. But we practice program evaluation as an integral feature of the ATP, and that is adding in a systematic way to our understanding of what, why, and how it is working. One of the things that has been attractive to certain companies about partnering under a federal government program is that it makes them more comfortable taking the step to collaborate without intense fear that the collaboration will automatically be viewed as a violation of antitrust laws. At the outset of the program, it was generally expected that the joint ventures would be where the collaborations took place, as opposed to the single-company awards. But we have found that extensive collaborating with other companies, universities, or others occurs in most of the ATP projects, including the so-called "single-company projects." There are a number of factors that account for this, including the fact that most of the technology development projects we fund are complex, requiring state-of-the-art multidisciplinary expertise that few single companies possess in the entirety. Another driver of collaboration is the fact that our selection criteria encourage up-front integration across science and business goals. This causes the market-oriented companies to reach out to strong R&D partners and vice versa in order to show strength across the board. And when companies are developing technologies that will benefit their entire industry, and other industries, they often seek partners to share the costs because they will all share the benefits.
We also try to be very user friendly. There are many people here at this workshop who have ATP awards. Often when I give talks, I encourage ATP participants to share their experience of working with the ATP. I do this in part because we are constantly trying to figure out how the ATP can better serve industry. We have also taken great pains to see how we can be more user friendly to universities and have made changes to encourage more university collaboration. In fact, 137 universities are currently participating in 234 ATP projects.
The ATP is a government program that was created, in part, to promote collaboration and partnership. And I believe that it is this core characteristic that has led to our success. As to why we are achieving big benefits, I think it is attributable to our focus on the potential economic benefit and understanding why these people need the ATP. We only fund the development of new technologies that are expected to have widespread beneficial effects extending well beyond the innovators. And we only fund where the ATP can be expected to make a big difference. We recently restructured our selection criteria to clarify that.
Ven Narayanan, National Institutes of Health: I must congratulate you on your success story of building this partnership, particularly the type of research leading to products in the marketplace. Are there any restrictions on some of your payoff dollars returning back to support other new projects?
Lura Powell: You mean recoupment?
Ven Narayanan: Yes, so that you can fund more such projects. Any prohibitions with that?
Lura Powell: Actually what we look at as the payback mechanism is job creation and company growth and the economic benefits that go to others outside the ATP award recipients—what economists call the "spillover benefits." Basically there is a much bigger impact in the longer run as higher-quality jobs are created, industry sectors are strengthened by technology-induced productivity gains, and the tax base grows. But beyond the benefits that show up in standard economic measures of national income, there are benefits that come from improved quality of life—health and safety benefits, environmental benefits, and other advantages that come from a higher standard of living through innovation.
Ven Narayanan: I asked the question because you said that the dollar amounts are limited.
Lura Powell: I am not sure whether you can actually do recoupment on early-stage research. It doesn't seem to make sense for our type of projects. By the time the research moves forward to the point where there's a commercial product, there have been so many other funding sources involved that it would be almost impossible to figure out ATP' s piece of the technology to recoup against. It would be a bit of a morass and might cost more than you could get back.
Ven Narayanan: I wanted to share some information as well. The National Institutes of Health is a very discipline-oriented, grantee-oriented type of institution. We face this problem with partnering—talents across the universities and industries in different geographic locations.
We started the national cooperative drug discovery groups in natural products and we now have groups in chemistry and mechanism-based approaches where we partnered with individuals utilizing some of their specific talents to solve multidisciplinary problems. The government funds the project at a similar level. We have about $8 million to $10 million allocated to this area.
The program has been successful and has resulted in the development of at least three novel cancer drugs.