|
|
|
ONLINE FEATURES
Book Reviews
BW Video
Columnists
Interactive Gallery
Newsletters
Past Covers
Philanthropy
Podcasts
Special Reports
BLOGS
Auto Beat
Bangalore Tigers
Blogspotting
Brand New Day
Byte of the Apple
Economics Unbound
Eye on Asia
Fine On Media
Green Biz
Hot Property
Investing Insights
Management IQ
NEXT: Innovation
NussbaumOnDesign
Tech Beat
Working Parents
TECHNOLOGY
J.D. Power Ratings
Product Reviews
Tech Stats
Wildstrom: Tech Maven
AUTOS
Home Page
Auto Reviews
Classic Cars
Car Care & Safety
Hybrids
INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads |  |
SEPTEMBER 22, 2003
Reinventing Corporate R&D Now even companies with big research budgets don't try to invent everything in-house Every month at Merck (MRK ) & Co., groups of scientists in different areas of disease research gather to evaluate the latest breakthroughs. But the innovations they haggle over don't come from Merck's own laboratories. They're generated someplace, anyplace, else: journals, conference reports, patent literature, and visits to other labs. "We scour the world," says Merv Turner, Merck's senior vice-president for external research. At the end of the meetings, each group typically flags a couple of innovations for a small team of scientists to investigate. Last year, one of the brain trusts tagged Amrad Corp., a tiny Australian biotech company that's working on a promising drug to treat respiratory diseases. By June, Merck had ponied up $5 million to seal an exclusive license and a multiyear research collaboration with Amrad that one day could be worth $112 million. It's just one payoff from Merck's "very aggressive antenna function to survey what's going on in the outside world," Turner says. Welcome to the future of corporate research. In recent years, there has been much hand-wringing over the slowdown in industrial spending by America's big corporate labs. Legendary science and engineering bastions such as Xerox (XRX ) Corp.'s Palo Alto Research Center and the old AT&T (T ) Bell Labs have gone through painful pruning. And for the first time in more than a decade, there could be an actual decline in overall corporate research and development funding -- $192 billion for 2003, or 0.7% less than 2002, notes F.M. Ross Armbrecht Jr., president of Industrial Research Institute Inc. Rather than drying up, however, industrial research is bubbling up all over the place, with more big companies following Merck. The downsizing by industrial giants makes headlines. But at the same time, a new R&D model is emerging, dubbed open innovation. Companies of all sizes are rounding up more partners, big and small, than ever before, and they're casting wide research nets, snapping up work at diverse corporate, government, and academic labs. So despite the gloomy dollar-spending numbers, U.S. R&D may be heading for a healthy makeover. While big companies have been a source of major breakthroughs, small and midsize companies have always been the main font of new products. Today, they're more innovative than ever -- not least because the rapid growth of computer power has put unprecedented research resources in the hands of thousands of teams around the globe. Furthermore, scientists everywhere are increasingly motivated by commercial payoffs. As a result, the time between new discoveries and product rollouts is collapsing. "Fundamental science breakthroughs now have fairly rapid commercial applications," says Walter W. "Woody" Powell, a guru in organizational behavior at Stanford University. Meanwhile, industry-university consortiums are spinning off engineering startups at a quicker pace than ever before, says J. David Roessner, associate director of the Science & Technology Policy Program at SRI International. At the same time, big companies are becoming more inventive in tapping researchers employed elsewhere to solve vexing problems. Giant chemical companies such as Dow Chemical (DOW ) Co. and BASF (BASFY ) are posting research problems at a Web site run by Eli Lilly (LLY ) & Co.'s InnoCentive Inc., which tries to match scientists with research problems. Even Xerox, which set the standard for do-it-yourself research, has turned to outsiders to help develop optical-network technology. "We were definitely not doing that 20 years ago," says Herve Gallaire, Xerox' chief technology officer. Xerox has contributed its expertise in imaging technology to a joint project with Intel (INTC ) Corp. that produced Intel's latest microprocessor, announced Sept. 10. It's tailored for applications in document imaging. Chalk it up mainly to corporate heavyweights learning that they can't develop all the breakthroughs in-house. "It's very hard for any company, even one that spends as much as we do on R&D, to do everything," says Paul Horn, senior vice-president and director of research at IBM (IBM ), which last year spent $4.8 billion on research. In high tech, belt-tightening also is pushing companies to find cheaper alternatives to conventional research. A study last year by Massachusetts Institute of Technology's Technology Review magazine found that most leading companies in struggling industries -- aerospace, computers, semiconductors, and telecommunications -- had trimmed R&D outlays. But they haven't turned their backs on innovation; they've just farmed it out. "It's not necessary for companies to invest in basic research to make money from it," says Henry W. Chesbrough, a Harvard Business School professor and author of Open Innovation, widely cited by research execs such as Xerox' Gallaire and IBM's Horn. Is there a danger in corporations relying too much on outside help? Merrilea J. Mayo, director of the Government-University-Industry Research Roundtable at the National Academy of Sciences, is worried because so much research is moving offshore. American innovativeness, she warns, could be hobbled more by loss of higher-skill jobs than by those lost in NAFTA. "That 'giant sucking sound' that Ross Perot heard is now happening in R&D," Mayo says. Nobody disputes that basic research in industry is taking its licks. Major scientific breakthroughs come mainly from long-term, well-funded R&D programs. Companies that don't spend on basic research now may suffer later. "You have a bunch of people with stunted vision," says Nathan Myhrvold, Microsoft Corp.'s former chief technology officer. The challenge, then, is to find the optimum balance of research and development. Procter & Gamble (PG ) Co. thrived for years relying on the 7,500 employees in its R&D group to gin up new products. But as the pace of innovation elsewhere increased, P&G faltered. To fix the problem, CEO Alan G. Lafley has decreed that half of the company's ideas must come from outside, up from about 10% when he took over in 2000. "We are probably as good as the next guy in inventing," Lafley says. "But we are not absolutely and positively better than everybody else." Today, P&G has 53 "technology scouts" who search beyond company walls for promising innovations. Other companies are scouting Web-based research services for talent. A year ago, Dow Chemical's Dow AgroSciences unit turned to Lilly's InnoCentive Web site to solve a dozen research riddles. InnoCentive has signed up 30,000 scientists worldwide and pays bounties of up to $100,000 for solutions to problems posted on the site by Dow and other seekers. Dow just made its first payout -- $50,000. It was a bargain, says Mark W. Zettler, manager of new-product development for Dow AgroSciences. Besides, he adds, "I would rather find the person who has the answer today than somebody that needs to work for three to six months in our lab." Since it was launched in mid-2001, InnoCentive has paid out roughly $500,000 to its problem-solvers. Another way to optimize research: Be more innovative in cozying up to universities. Intel is pioneering a new approach. It has set up satellite research facilities adjacent to Carnegie Mellon University, University of California at Berkeley, University of Washington, and Britain's Cambridge University. The idea is to move the brightest minds in academia temporarily into these "lablets" and focus on long-term projects. "We're only going to create a small fraction of the good ideas, and only a small fraction are going to pass through our labs unless we take extra strong action," explains David L. Tennenhouse, Intel's director of research. Ultimately, when the corporate R&D makeover is finished, U.S. industry may be in its best fighting trim ever. America was the innovation champ long before companies started splurging on basic research in the postwar era. Recent cutbacks in corporate funding of research are disturbing to many scientists. But the vibrant, open model now taking shape will make the U.S. "tremendously productive," says IBM's Horn. As long as large companies don't forsake the quest for the next big thing.  By Jay Greene in Seattle, with John Carey in Washington, Michael Arndt in Chicago, and Otis Port in New York
BW MALL
SPONSORED LINKS
Get BusinessWeek directly on your desktop with our RSS feeds.
Buy a link now! Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
 Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.Terms of Use | Privacy Policy |
Printer-Friendly Version
