Essay

Making the R&D Connection: A Perspective on the University Role

Arati Prabhakar, director, National Institute of Standards and Technology, Department of Commerce
Within the 35 percent of the U.S. science and technology community supported by federal tax dollars, much discussion centers on the proverbial budget axe poised to swipe across a mixed forest of research and development programs. These programs sprouted and then flourished in the post-World War II era of generous federal funding for academic R&D. If the axe does fall, just how radically will the research landscape be changed? Looming constraints on federal R&D support are likely to spur self-preservation tactics aimed at securing alternative sources of funding. But as serious as this prospect is, it is only part of a larger set of issues demanding a strategic reassessment and response by the entire R&D community. The research landscape as well as the relationships its sustains cannot and should not be insulated against change--petrified, in effect, in its historic form--while all that lives and grows beyond its borders contend with relentless forces of change. Over the last five decades, the U.S. university system has established itself as the nation's-and the world's--premier performer of forward-looking, basic research. Industry, which performs and sponsors the lion's share of R&D--spending more than $100 billion annually--has concentrated on applied research and development, now devoting about 93 percent of its resources to these market-oriented tasks. With an R&D budget of about $70 billion, the federal government allocates the bulk of its resources for mission-oriented research, principally in the area of defense, and it is the primary funder of academic R&D. Under this system of R&D responsibilities, academic researchers have made discoveries that broadened and deepened understanding of nature and human behavior. They also have laid the foundation for new technologies, new products and services, and even new industries. And in so doing, they have trained succeeding generations of scientists and engineers who fanned out to companies, government laboratories, and colleges and universities, here and abroad. The outstanding performance of the U.S. university system has been sustained largely by growing federal support for academic research, which accounted for $13 billion, or 60 percent, of total R&D spending at colleges and universities in 1995. In contrast to the widespread perception that federal funding is declining, federal support of academic R&D has increased continuously since 1982. During the 1990s, it grew at an inflation-adjusted

annual rate of 3.2 percent. Thanks in large part to this growing contribution, academia is the only R&D-performing sector not to have suffered a constant-dollar decline during this decade, according to the National Science Foundation. Nonetheless, there are valid concerns that efforts to eliminate the budget deficit will lead to decreased federal support for academic research in the future. R&D is a significant portion of federal discretionary funding and, hence, is quite vulnerable to the budget axe. Many are now suggesting that U.S. industry should step into the anticipated breach in funding for universities. Annual company funding for university research is growing, to about $1.5 billion (or less than 2 percent of the total that industry spends), but now accounts for only about 7 percent of all academic R&D support. Investment or Substitute Funding? A strong argument can be made for increasing industry's investment in academic research, but not without qualification. Benefits touted as warranting a boost in private sector outlays, such as speeding the transition from raw discoveries to real world applications, may not be realized if the practical effect is simply to substitute one source of funding for another. Academic institutions also must respond to powerful forces, from intensifying international economic competition to the rapid diffusion of new knowledge to the increasing mobility of R&D personnel, capital resources, and capabilities, that are buffeting the entire research enterprise. These forces are challenging many old ways of doing business, rendering them obsolete and ineffective, especially when viewed from the vantage point of the national economic interest. With whatever funds available, all sectors must work smarter and faster, more interactively and more efficiently. This does not mean that the legitimate R&D roles of individual sectors and organizations should be distorted or subverted in the service of another. Universities, for example, must maintain a strong focus on long-term research and education, especially as industry narrows the focus of its R&D and moves it "closer to the customer." Still, we as a nation can afford neither the luxury of leisurely harvesting the fruits of discovery and invention, nor the mistake of leaving them for others to harvest and market. Historically, as reported by Mansfield and others, the gestation period for academic research typically has spanned more than a decade, sometimes exceeding the patent life of inventions generated by early, ground-breaking studies. In many areas, long time frames and the attendant risks have deterred industry from following through on the breakthrough achievements of academic scientists. Today, we can point to important exceptions, examples in which the outmoded model of linear R&D has been replaced by a more dynamic, interactive style of working that transcends sectoral boundaries. Biotechnology and software are two particularly strong examples of fields where linkages between university research and the marketplace have worked in exciting new ways. Partnerships: One Piece to the Puzzle

Close attention must be paid to the health and productivity of the nation's entire science and technology system. The amount of money allocated for R&D and how those dollars are distributed are, obviously, important concerns, ultimately defining the breadth and depth of research efforts. Among many crucial system elements also warranting thoughtful study are the mechanisms that enable the R&D community to integrate its varied capabilities and to use them to the nation's full advantage. Unfortunately, there is no single prescriptive means for achieving this end. Partnerships are an additional strategy--albeit a critical one--to strengthen the health and performance of the national science and technology system. They can be an antidote to the inertia that has plagued the middle stage of premarket R&D, typically the longest period in what has been an awkward and sometimes haphazard progression from lab to marketplace. At this stage, raw research results are shaped into still rough technological form, enabling technical proof of concept, for example. Working partnerships, by combining and integrating technical skills, resources, and perspectives, can compress the intermediate stage of a technology's metamorphosis and make the preceding and succeeding stages more productive, as well. Within the federal sector, the largest supporters of university research--the National Institutes of Health, NSF, Department of Energy, NASA, and the Department Defense-have instituted measures intended to foster partnerships and to blend R&D capabilities in ways that advance their particular missions and yield results useful to industry. Crossing Organizational Boundaries With the mission to work with U.S. industry to develop and apply technology, measurements, and standards, the National Institute of Standards and Technology is not a major funder of academic research. But we recognize the important role that universities can play in advancing our goals. In the case of NIST's Advanced Technology Program, the incentive of matching government funds to support competitively selected, industry-proposed R&D projects is proving to be a catalyst for collaboration. It is fostering inter-company and inter-sectoral cooperation during the early-stage development of technologies upstream from the market. Of the 280 projects selected by the ATP since 1990, 56 percent involve at least one university partner. One such project, for example, aims to overcome technical barriers obstructing commercial development and application of plasma source ion implantation (PSII), a promising, but still highly experimental, University of Wisconsin invention. In this collaborative effort, organized and led by a private sector research institute, 11 companies--from makers of locks and chrome-plated ornaments to a motorcycle manufacturer to electronic device producers--are teaming with the University of Wisconsin and Los Alamos National Laboratory to demonstrate the technology's potential for uniformly depositing ultra-hard, wear-resistant surfaces on complex-shaped parts made from any one of a variety of materials. The barriers are steep: PSII has been demonstrated only in a laboratory treatment chamber, a very long way from the high-volume applications that are envisioned. Still, the potential utility and commercial benefits are great, and

recognized world over. Of the some 35 laboratories now pursuing the commercial promise of this U.S. technical advance, more than half are located overseas. At NIST's laboratories, university collaborators have long been valued for their contributions, but the changing R&D climate is increasing that appreciation and, as a result, the level of interaction. More than 350 university staff members are working as guest researchers in the NIST laboratories. University researchers are also key participants in NIST-led consortia with industry. Consider an 18-organization effort to improve the precision casting of metal alloys commonly used in the aerospace industry. Spanning the spectrum from fundamental studies on materials properties to development of computer models and software incorporating the results of this research, the consortium is a distributed effort. Specific tasks are carried out in the laboratories of collaborating universities, companies, and federal agencies. The contributions of three particularly active universities--the University of Arizona, Auburn University, and the University of Illinois-have been especially critical. Their research is helping to guide efforts to enhance the aerospace industry's processing capabilities on the basis of new and deeper scientific understanding of casting variables. Just as work conducted at the boundaries between disciplines can prove to be especially productive, often leading to leaps in understanding and to breakthrough accomplishments, collaborations that span organizations and R&D sectors present rich opportunities for progress on many fronts of science and technology. Recognizing and realizing these opportunities requires researchers and organizations in all sectors to think more broadly and more creatively. It also requires them to be more enterprising and to search aggressively for connections between fields and sectors--connections either created by new advances, capabilities, or needs, or previously obscured by compartmentalized ways of thinking and outdated concepts. To be sure, this nation must invest adequately in science and technology. It must comprehend the economic and societal consequences of shrinking research horizons-foregone future opportunities. Yet, the nation has a reasonable right to expect a strong-indeed spectacular--return on its R&D investment. Researchers and their organizations are obliged to think and act in ways that will help them meet this expectation. In so doing, they will inspire the trust and confidence of investors and policymakers now faced with complex decisions on how best to allocate limited resources among alternative opportunities and competing needs. An excerpt of this essay appears in the AAAS Next Wave Fourm mark.bello@nist.gov R&D as a business The phrase research and development (also R and D or, more often, R&D), according to the Organization for Economic Co-operation and Development, refers to "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including

knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications" [1]

R&D
New product design and development is more often than not a crucial factor in the survival of a company. In an industry that is fast changing, firms must continually revise their design and range of products. This is necessary due to continuous technology change and development as well as other competitors and the changing preference of customers. A system driven by marketing is one that puts the customer needs first, and only produces goods that are known to sell. Market research is carried out, which establishes what is needed. If the development is technology driven then it is a matter of selling what it is possible to make. The product range is developed so that production processes are as efficient as possible and the products are technically superior, hence possessing a natural advantage in the market place. R&D has a special economic significance apart from its conventional association with scientific and technological development. R&D investment generally reflects a government's or organization's willingness to forgo current operations or profit to improve future performance or returns, and its abilities to conduct research and development. In 2006, the world's four largest spenders of R&D were the United States (US$343 billion), the EU (US$231 billion), China (US$136 billion), and Japan (US$130 billion). In terms of percentage of GDP, the order of these spenders for 2006 was China (US$115 billion of US$2,668 billion GDP), Japan, United States, EU with approximate percentages of 4.3, 3.2, 2.6, and 1.8 respectively. The top 10 spenders in terms of percentage of GDP were Israel (4.53%), Sweden (3.73%), Finland (3.45%), Japan (3.39%), South Korea (3.23%), Switzerland (2.9%), Iceland (2.78%), United States (2.62%), Germany (2.53%) and Austria (2.45%). [2] In general, R&D activities are conducted by specialized units or centers belonging to companies, universities and state agencies. In the context of commerce, "research and development" normally refers to future-oriented, longer-term activities in science or technology, using similar techniques to scientific research without predetermined outcomes and with broad forecasts of commercial yield. Statistics on organizations devoted to "R&D" may express the state of an industry, the degree of competition or the lure of progress. Some common measures include: budgets, numbers of patents or on rates of peer-reviewed publications. Bank ratios are one of the best measures, because they are continuously maintained, public and reflect risk. In the U.S., a typical ratio of research and development for an industrial company is about 3.5% of revenues. A high technology company such as a computer manufacturer might

spend 7%. Although Allergan (a biotech company) tops the spending table 43.4% investment, anything over 15% is remarkable and usually gains a reputation for being a high technology company. Companies in this category include pharmaceutical companies such as Merck & Co. (14.1%) or Novartis (15.1%), and engineering companies like Ericsson (24.9%).[3] Such companies are often seen as poor credit risks because their spending ratios are so unusual. Generally such firms prosper only in markets whose customers have extreme needs, such as medicine, scientific instruments, safety-critical mechanisms (aircraft) or high technology military armaments. The extreme needs justify the high risk of failure and consequently high gross margins from 60% to 90% of revenues. That is, gross profits will be as much as 90% of the sales cost, with manufacturing costing only 10% of the product price, because so many individual projects yield no exploitable product. Most industrial companies get only 40% revenues. On a technical level, high tech organisations explore ways to re-purpose and repackage advanced technologies as a way of amortizing the high overhead. They often reuse advanced manufacturing processes, expensive safety certifications, specialized embedded software, computer-aided design software, electronic designs and mechanical subsystems. Research has shown that firms with a persistent R&D strategy outperform those with an irregular or no R&D investment programme.[4]

[edit] Pharmaceuticals
Research often refers to basic experimental research; development refers to the exploitation of discoveries. Research involves the identification of possible chemical compounds or theoretical mechanisms. In the United States, universities are the main provider of research level products. In the United States, corporations buy licences from universities or hire scientists directly when economically solid research level products emerge and the development phase of drug delivery is almost entirely managed by private enterprise. Development is concerned with proof of concept, safety testing, and determining ideal levels and delivery mechanisms. Development often occurs in phases that are defined by drug safety regulators in the country of interest. In the United States, the development phase can cost between $10 to $200 million and approximately one in ten compounds identified by basic research pass all development phases and reach market.

[edit] Business
Research and development is nowadays of great importance in business as the level of competition, production processes and methods are rapidly increasing. It is of special importance in the field of marketing where companies keep an eagle eye on competitors

and customers in order to keep pace with modern trends and analyze the needs, demands and desires of their customers. Unfortunately, research and development are very difficult to manage, since the defining feature of research is that the researchers do not know in advance exactly how to accomplish the desired result. As a result, higher R&D spending and does not guarantee "more creativity, higher profit or a greater market share." [5]

[edit] R&D alliance

An R&D alliance is a mutually beneficial formal relationship formed between two or more parties to pursue a set of agreed upon goals while remaining independent organisations, where acquiring new knowledge is a goal by itself. The different parties agree to combine their knowledge to create new innovative products. Thanks to funding from government organizations, like the European Union's Seventh Framework Programme (FP7), and modern advances in technology, such as EuresTools, R&D alliances have now become more efficient. Technology Transfer

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The 10 Rules of Technology Transfer

Posted In: R&D Magazine | Technology Policy Friday, February 13, 2004

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Tech transfer is growing in industry to accelerate product development, in academia to support research efforts, and in government to commercialize developed technologies. In all of these areas, the technology purchaser often needs to heed to the warning--"buyer beware."
The one overriding rule of technology transfer appears to be that tech transfer is a different thing to different people. To members of the Association of University Technology Managers, it's "a term that describes a formal transfer of new discoveries and innovations resulting from scientific research conducted at universities to the commercial sector. To the Federal Laboratory Consortium, it's "a process by which existing knowledge, facilities, or capabilities developed under federal R&D funding are utilized to fulfill public and private needs." In industry, it's a mechanism that enables companies to solve their own technology needs by purchasing or licensing other companies' technology and expertise. Tech transfer is obviously non-limiting in nature and encompasses all of these attributes. It basically involves the transfer of use of intellectual property (IP) from one organization to another, generally for the payment of a use or licensing fee. But include the payment of a fee in any arrangement and you immediately create issues involving an organization's profit or loss situation. A few precautionary rules for enhancing profits and minimizing losses in a technology transfer

More engineering-related issues are cited in a recent R&D Magazine survey due to its involvement in product development areas.

Click on image to enlarge. More than 20% of all R&D is dedicated to technology transfer according to our industrial, government, and academic readers.

Click on image to enlarge. Collaborative development was the most common type of tech transfer project cited in a recent R&D Magazine reader survey.

arrangement is the purpose of this article. The rules listed here are in no way intended to be all-inclusive for the evaluation of a technology transfer event. They are intended to highlight some of the complexities of successfully pursuing this increasingly useful avenue of meeting your organization's strategic goals. 1 Don't over-value the value of a technology. Too often, participants in a tech transfer agreement will undervalue the cost of scaling a product from its prototype demonstration stage to full commercial production, according to Craig MacDonald, Battelle's VP Strategic Alliances, Columbus, Ohio. Too often the buyers will become enamored with the technology and underestimate such implementation costs, as tooling, materials, packaging, processing, and testing/quality assurance. One of the largest causes of a failed tech transfer deal is a run-up in manufacturing costs The technology buyer is advised to have qualified manufacturing experts fully evaluate these costs during the evaluation stage. Users are recommended to add a 15% contingency fee to the final estimated manufacturing costs to offset unanticipated costs. 2 Fully understand your target market. Strange as it may seem, some tech transfer participants will purchase a technology without a good understanding of the potential commercial market for the technology, according to Robert Bass, VP of the mechanical and materials division at Southwest Research Institute, San Antonio, Texas. Bass recommends that technology purchasers define their market needs early in a tech transfer negotiation and make sure that there is a clear commercial advantage of the final product compared to its potential competition. He also advises technology purchasers to get the end users of the product involved early on and see what the overall market will bear for the new technology. Time is also not always on your side in these negotiations, since markets may change during the product's manufacturing scale-up phase. 3 Hire good people to make your deals. People managing the negotiations of a technology transfer deal should have a strong technological background, along with a good business understanding and some legal background, says Annemarie Meike, a business development executive in the Industrial Partnerships and Commercialization division at Lawrence Livermore National Laboratory, Livermore, Calif. "Without these traits it is difficult for your business team to achieve their goals," she says. All of their expertise will come into play during these negotiations. 4 Look for win-win solutions. "Technology transfer is about getting the technology into the market," says Meike. A win-win solution is often one where the technology provider and the purchaser have complementary capabilities that together result in a strong technology being efficiently manufactured and effectively marketed to a marketplace that needs and wants the technology. Often companies with similar capabilities while understanding each other's requirements may appear to be compatible, but in reality neither may bring anything to the table that isn't already there.

5 There is still plenty of room at the bottom.The strategic National Nanotechnology Initiative serves as an excellent example of how federally funded research can lead to the development of new industries and provide ongoing basic research sustenance to strengthen corporate development efforts," says Joseph Allen, president of the National Technology Transfer Center, Wheeling, W.V. Allen is also author of the just-published "Technology Transfer for EntrepreneursA Guide to Commercializing Federal Laboratory Innovations." Allen sees a plethora of nanotechnologies being supported by federal R&D funding and developed in federal labs where an industrial technology transfer partner could help commercialize them. Federal agencies involved in these research efforts include the Departments of Defense, Energy, and Justice, the EPA, NASA, NIST, National Institutes of Health, and the National Science Foundation. 6 Test the market. "The best way to assess a technology is to ask market participants about the value that benefits of a technology can bring them," says Peter Liao, head of the Center for Technology Applications at Research Triangle Institute, Research Triangle Park, N.C. "If there is value then you can try to sell them on the opportunity." Most industrial organizations would never think twice about doing market research on a new product that was developed internally. But, too often, that same tactic is ignored when purchasing a technology from outside the company. The purchaser can mistakenly believe that market research has already been performed by the technology supplier or just outright overlook it. Either way, market research is still invaluable for any new products and in a tech transfer deal, it should be performed prior to signing the final documents or at least as an essential make/break component of the deal. Liao also advises tech transfer partners to not get discouraged. Historically, only 1% to 5% of patented technology gets commercialized. 7 When you commit, commit. The technology resource allocation process in a technology organization is typically a complex arrangement of priorities, daily operations, and essential operations. In a tech transfer scenario, when the deal is finally signed and the technology transferred, resources need to be available to support it in the time frame that will provide for its successful implementation. If ongoing operations take away resources from the transferred technology, then disparities can develop between the organization's planned strategy and its actual implemented strategy. Resources need to be actively monitored, understood, and controlled on a day-to-day allocation if need be. 8 Don't trivialize the legal aspects. Technology can be transferred, but if you don't own the rights, you may be at risk in terms of what business you can really create out of the technology. Be protective of your rights and make sure you receive all aspects of the technology that you need. "There have been several instances lately where the actual "inventorship" of a technology was disputed and claims were made on parts of a technology that was developed by someone else," says Stephen Maebius, a partner at Foley & Lardner Intellectual Property, Washington, D.C. "Especially in the booming area of nanotechnology, a client has to watch out for broad claims of others in their negotiations

and consider the claims of other patents." 9 Understand the system. There have been a number of laws passed over the past 20 years supporting tech transfer. Some may affect your particular situation. It would be worth the time to understand the basics of what each of these provide, it could save money and time in the long run. The Bayh-Dole Act passed in 1980, for example, allowed non-profit organizations (universities, etc.) to retain title to innovations developed under federallyfunded research programs. The Stevenson-Wydler Act of 1980 established cooperative research and development agreements (CRADAs). Other laws passed that supported the growth of tech transfer include the Small Business Innovation Development Act (1982), the National Cooperative Research Act (1984), the Federal Technology Transfer Act (1986), the National Competitiveness Technology Act (1989), the Small Business Research and Development Enhancement Act (1992), and the Technology Transfer Improvements and Advancement Act (1996). 10 Use every resource. Technology transfer is strong and growing. The government supports it and there is a host of technologies available. As a result there is an enormous amount of information available for potential technology purchasers, much of it online. The following resources are just a sampling of all that is available: Association of University Technology Managers (AUTM) , Northbrook, Ill., 847-5590846, www.autm.net Federal Laboratory Consortium for Technology Transfer (FLC) , Cherry Hill, N.J., 856667-8009, www.federallabs.org National Agricultural Library Technology Transfer Information Center (host site for all federal tech transfer information),> www.nal.usda.gov/ttic National Technology Transfer Center (NTTC) , Wheeling, W.V., 304-243-2130, www.nttc.edu The Technology Transfer Society , Chicago, Ill., 312-644-0828, www.millkern.com Yet2.com , Cambridge, Mass., 617-557-3800, www.yet2.com