Recapturing R&D Leadership

July 13, 2006
If maintaining U.S. R&D leadership is the goal, then both government support and industry practices need to be reconsidered.

The experts warn: If maintaining U.S. R&D leadership is the goal, then both government support and industry practices need to be reconsidered. They contend that federal funding of basic research is slipping even as industry turns from basic to applied research. Further, they say industry has tilted too far toward equating R&D success more with product development than with optimizing the innovation process. In this, the first part of a four-part series, Recapturing R&D Leadership, IW explores the scope of the challenges facing U.S. manufacturers.

The growing challenge to U.S. innovation leadership is detailed in the latest R&D forecast from Columbus, Ohio-based Battelle Memorial Institute:

  • The federal government is expected to spend $96.6 billion funding R&D efforts, a modest increase of 1.8% over the $94.9 billion spent in 2005
  • Industry expenditures on R&D are expected to reach $211.9 billion in 2006 -- an increase of 3.5% over the $204.8 billion expended in 2005.
  • Academia and other non-profits make up the remaining expenditure of $20.4 billion with academia increasing by a slim 1.1% and other non-profits increasing by a healthier 3.7%.

A running -- and important -- theme revealed from data and trends throughout the report "is that the support of research and development runs the risk of being viewed as an expense and a luxury, rather than an investment, and one that can be shelved until more funds are available," says Battelle's Jules Duga, a senior research leader and forecast co-author with R&D Magazine.

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The major issue is that Federal support of R&D is not growing rapidly. Indeed funding can be viewed as being essentially flat, says Battelle's Carl Kohrt, president and CEO. "And historically the industrial funding rate has been higher -- 7.5% as opposed to the predicted 3.5%," he adds.

Taken together, those predicted declines are more than incremental shortfalls across the scope of R&D, notes Kohrt. The significance: "While Federal funding of R&D -- basic research -- is declining, industry is shifting its reduced R&D allocation from basic research to primarily applied product development. That delays the new disruptive technologies needed to drive future industrial, [which, in turn] translates into a diminished industrial future as the emergence of new disruptive technology development platforms is delayed."

In addition, Kohrt says the need for basic research has taken on added significance as the excitement of fundamental discovery shifts to the interfaces among scientific disciplines. As an example, he cites the confluence of computational science, biological science and the physical sciences. "Those three will come together in the area of systems biology -- an area where a huge number of basic advances will be made," asserts Kohrt. "In the last century, it was mostly physical sciences and later on computational, but biology was basically an observational science."

Kohrt predicts: "This century will see biology become a quantitative and predictive science. Lab equipment investments will grow. Instead of a lab's typical benchtop apparatus, experiments will tend to require big, expensive equipment such as synchrotron light sources." He notes that Brookhaven National Laboratory's synchrotron is being considered for a costly upgrade to further nanoscience research. Another example is the completion of a $1.4 billion neutron source project in Oakridge, Tenn., adds Kohrt. "It will be able to look at an atomic level in ways that were never conceived of ten years ago."

Built and supported by government funding, these costly scientific tools are intended to help advance interdisciplinary research efforts of companies, universities and individual researchers. Kohrt emphasizes that future advances in interdisciplinary science will increasingly depend on a growing government role in basic research. No company, on its own, would ever be able to afford the necessary scientific equipment, he asserts.

Kohrt argues that an increasing government role (in basic research) is made even more imperative by the business model pressures on the R&D decisions made by established multinational firms. (Kohrt once served as the chief technology officer at Kodak.) "These marketers typically have a strong historical connection with a brand or an industry in which they compete," says Kohrt. As a result, they have an increased tendency to spend more and more resources on innovative extensions of existing product lines. At most, creative ideas are only applied within a field that they self-define. "The tendency is . . . you have wonderful technology . . . you know it can be used for other things, but it's got to be used for the thing that you're making money on -- now."

Increasingly, says Kohrt, companies are working more on product development, more near-term innovations and less on the basic discovery step. "They now expect to get that from government, universities and networked collaborators in the Procter & Gamble style." At the industrial level, Kohrt says R&D practices "have been reduced to a commoditization of existing knowledge and technology through global collaboration." He makes the point that the old days of corporate basic research have dwindled since a peak in the early 80s. "Back then," he reminisces, "Kodak had research facilities on four continents." (Today Kodak has R&D facilities in Rochester, N.Y. and Cambridge, England, says Rochester-based spokesman David Kassnoff.)

Kohrt sees industry's sharpened focus on applied development as a long-term trend. It does raise questions, notes Battelle's Rich Adams, senior vice president. "For example, where will the new disruptive technological developments come from?" He answers, "startups," and raises another question: Will older U.S. companies continue to be less defined by new discoveries than startups?

Adams notes that some disruptive technology still reaches the marketplace despite industry's applied research emphasis. As evidence, he points to the increasing complexity of today's commercial products. "Products that were successful 20 or 30 years ago tended to be substantially simpler in terms of concept, design, and the manufacturing process." His point: Today's product complexity is related to the new interdisciplinary nature of product development.

"Today's emphasis on short-term results will bring more technology evolution rather than revolution, says Eaton Corp.'s Sohan Uppal, vice president, technology, Fluid Power Group, Eden Prairie, Minn. "So while we're taking fewer chances, we may be missing bigger opportunities."

Protecting Intellectual Property

Another measure of the shift from basic to applied research can be found in how product developers need to approach patent protection and infringement, says Lance Lieberman, managing partner, Cohen Pontani Lieberman & Pavane (See "Patents: Eleven Issues To Consider"). For example, risks of infringement are typically higher in established technologies where product extensions are being planned, says Lieberman, an intellectual property attorney.

Lieberman says manufacturers need to focus on two concerns, the first is avoiding other people's patents and the second is getting patents of their own or getting some exclusivity on the things that they're making or designing. "Unfortunately it is virtually impossible to either know or satisfy yourself in advance of coming out with a product that you're not going to infringe somebody's rights. Totally new, disruptive technologies lessen that risk. Every aspect of a developed product needs to be searched. Product complexity works against developers who hope to avoid infringement. That's the biggest problem with both high- and low-tech manufacturing today."

Lieberman says the best approach starts with evaluating the extent of potential problems and establishing a strategy. "Look at the things that you believe to be new and stay focused technologically so you can attempt to avoid the things that are most likely to present a problem."

His advice: "The most important consideration, particularly with larger companies, is to keep an open line between the patent attorneys and the people who are doing the designing [product development] as well as the internal patent department that tracks new ideas." He says patent searches can also help guide researchers and product developers. Those companies that have a continuing dialog among those disciplines tend to be most successful in both avoiding other people's patents and in getting their technology patented, adds Lieberman.

"Clients frequently ask us to do patent searches of what competitors are doing. Patent holding companies can pose a challenge. These are people that basically wait for you to step over the line. That's what happened with Research In Motion's Blackberry. In that kind of a situation a court may close down product operations while subsequently, maybe in two months, the patents may be found to have no validity." He favors barring such injunctions in the absence of a competitive product.

Maximizing Federal Funding's Impact

Despite the rising pressures of the Federal deficit, national support of R&D got a boost with the president's announcement of the American Competitive Initiative. His focus: committing $5.9 billion in fiscal year 2007 to increase investment in research and development, strengthen education and encourage entrepreneurship. "Over 10 years, the initiative commits $50 billion to increase funding for research and $86 billion for research and development tax incentives," said President Bush in announcing the initiative. "My 2007 budget requests $137 billion for federal research and development, an increase of more than 50% over 2001 levels."

Will that be enough to maintain global leadership? For example, how does U.S. R&D spending compare with China? Science, the publication of the American Association for the Advancement of Science, offered a perspective in its March 6 issue. Its Chinese correspondent reported that "spending by all Chinese sources, industry included, will rise from 236 billion yuan ($30 billion) in 2005 to 900 billion yuan ($113 billion) in 2020. Basic research is slated to climb from 6% of R&D expenditures in 2004 to as much as 15% in 15 years."

Funding size, however, is difficult to correlate with the issues of performance, quality or even adequacy. For example, federal funding should be considered as setting "the table" so that companies can prepare "the meal," quips Edward T. Reilly, president, American Management Association, New York. And he says an AMA survey of 1,356 global companies indicates that "better meals"' are coming as companies discover the R&D process improvement opportunities. "The survey reveals the encouraging news about the general agreement and acceptance of the fact that [R&D] creativity can be consciously managed."

Company R&D attitude changes are also predicted by a recent study by IBM Corp.'s Business Consulting Services. A majority of the 750 CEOs surveyed plan fundamental changes and expect new forms of innovation to drive growth.

Adds IBM's Ginni Rometty, senior vice president, IBM Enterprise Business Services: "It's not just product innovation any more. It's about understanding how to innovate a business model, or an operational process, or management behavior -- such as real-time risk management, collaborative pharmaceutical development or digital film distribution."

The respondents in both studies attribute the new attitude toward R&D process optimization to growing competitiveness from globalization. The Human Research Institute conducted the survey for the AMA.


Lean R&D? Most companies tend to limit their Lean transformation efforts exclusively to the shop floor -- as in the Toyota Production System. But more business leaders are discovering that Lean and TPS are enterprise strategies, not departmental solutions. (See the opener of IW's yearlong series, "Rebuilding U.S. Manufacturing") Significant competitive advantages result as companies move upstream from lean production to lean solutions especially as the philosophy reaches and embraces R&D.

"Indeed the ability to bring innovative products to market rapidly and effectively is becoming the critical competence for manufacturing success," says Jeffrey K. Liker, co-author with James M. Morgan of The Toyota Product Development System. (See excerpts from the book.) "That competence can even have a bigger impact on a lean enterprise than lean manufacturing." But, the important point, adds Liker, is that maximum business success requires lean principles to be applied to all aspects of the business model.

"Customer value must increase while waste is eliminated," he says.

Dell Computer, for example, has used the lean product development approach to optimize operations both internally and for its suppliers. For example, by using Design For Manufacture and Assembly (DFMA) software from Boothroyd Dewhurst Inc., Wakefield, R.I., Dell increased production throughput at a production facility. By optimizing the product design for the manufacturing step, Dell met growing customer demand without the need for a new plant. Dell uses the same DFMA tools to bring about the Lean optimization of its supplier's production operations.

Boothroyd Dewhurst's DFMA software offers the opportunity to analyze cost effects of design decisions at any time during the product development cycle. Some high-profile users seeking lean optimization with DFMA include Boeing Co., Harley-Davidson Inc. and Deere & Co.

Integrating research data among R&D labs is a growing problem as companies transform into global business models. At Cincinnati's Procter & Gamble Co., the challenge is being met with product lifecycle management (PLM) software. The initial hurdle was conceptual -- the idea of using a software solution originating in discrete manufacturing to support the R&D and formulation of products involving chemistry or biology, says Keith Caserta, associate director and head of P&G's Health Care R&D IT organization.

"We proceeded," says Caserta, "because we found similar IT challenges and payback. Using UGS Corp.'s Teamcenter Enterprise, we are able to integrate the intellectual property management across our eight R&D laboratories -- simplifying and assuring data flow and access. In addition, data is presented according to the preferences of each laboratory." P&G has a corporate license for the PLM solution.

In the next 18 to 24 months Caserta estimates more than 90% of P&G's 8,000 researchers to routinely input and access R&D data via PLM. That's when he anticipates P&G's electronic lab notebook implementations to be completed. He expects typical users to reduce weekly data input time 20% from the 10 hours now required. But Caserta thinks the big win is in the new data accessibility -- "ready access via PLM eliminates the risk of repeating costly experiments." He estimates that as much as 15% of scheduled lab experiments are unknowingly repeated because of data access difficulties. Caserta estimates that electronic notebook data entry will reduce that percentage by half.

Speed, productivity and success rate -- that's how Caserta describes PLM's potential contributions to an R&D strategy.

How IBM Wins

In 1933, IBM's founder, Thomas Watson Sr. said, "We have realized from experience that the future of our business largely depends on the efforts, brains and ability of our engineering department."

Today that search for the winning connection to the bottom line continues at an accelerated pace, says IBM's Stuart Feldman, vice president of computer science at the T. J. Watson Research Center, Hawthorne, N.Y. The evidence includes a continuation of IBM leadership in U.S. patents for the 13th consecutive year. In 2005, IBM received 1,100 more patents than any other company. Last year was the eighth consecutive year IBM has received more than 2,000 U.S. patents. Other evidence includes the thousands of scientific papers published annually, adds Feldman.

Need more affirmation of IBM Research's connection to the bottom line? "First, it's where each of IBM's billion-dollar businesses originated," says Feldman. Second, IBM, earlier this year announced two business units designed to help clients achieve similar success in reinvigorating both basic and applied research. The basis of both business models, says Feldman, is that "companies that are not involved with creating technology are likely to find themselves at a great disadvantage."

March saw the first launch -- IBM's new Technology Collaboration Solutions organization. The operating premise: "Increasingly companies must collaborate with each other and develop additional channels in order to achieve a new level of innovation required for success," says Adalio Sanchez, general manager. "The new Technology Collaboration unit is designed to help them get access to world class technologies and experienced integration teams they need to win in this exciting emerging area."

IBM's June launch of its R&D consulting practice presents a comprehensive strategy to complement the Technology Collaboration Solutions unit, says Melvin Weems, global leader for R&D management, IBM Global Services.

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