The Future of Tech August 27, 2009, 5:00PM EST

Big Blue's Global Lab

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After aggressively moving manufacturing and software programming to other countries, American corporations are setting up research labs overseas as well. But building brick-and-mortar labs and hiring large staffs is expensive, so some, like IBM, are beginning to establish closer relationships with foreign governments and universities. For instance, computer maker Hewlett-Packard (HPQ) formed a joint lab with Tsinghua University in Beijing. Chip giant Intel has set up joint research centers in China and Germany. "We'll have more and more global research," says Andrew A. Chien, vice-president for future technologies research at Intel. "We have an imperative to reach out and tap that power."

The attraction for IBM is clear. The collaborative strategy snags more research with roughly the same amount of IBM money. Performing research with a variety of partners in many locations also exposes IBM to science challenges and ideas that it might not otherwise encounter.

For years, IBM's crown jewel has been its 3,000-scientist research department—with labs in New York, California, Texas, Massachusetts, China, India, Israel, Japan, and Switzerland. Although revenues have declined by double digits this year, the budget for research is holding steady. The payoff: Thanks in large part to the labs, IBM has remained on the cutting edge of supercomputing, chip manufacturing, and datacenter management.

With the collaboratories, IBM hopes to make research an even bigger contributor. Each joint venture is expected to be staffed with 10 to 100 scientists targeting technologies that can deliver results in a relatively short time. The strategy is synchronized with what IBM calls its "Smarter Planet" push, where it offers technologies and services to improve transportation, electrical grids, and other systems.

IBM and other companies pursuing similar strategies face complex hurdles, however. It's not easy to set up and run this kind of lab. First, IBM has to sift through hundreds of potential partnerships to pick the ones that make the best fit. Then the company and its partners have to negotiate contracts that spell out responsibilities and protect each side's interests. One major potential hangup is dealing with intellectual-property ownership. In a typical collaborative research agreement, IBM wants to co-own the intellectual property or have exclusive rights to it, but that's not always acceptable to universities. One potential IBM project in Eastern Europe fell apart last year because the university wanted to control both the intellectual property and research agenda. "That was a showstopper," says Kelly.

The man behind IBM's new research strategy is a tall, sandy-haired 55-year-old with R&D in his DNA. His father worked as a technician at General Electric's (GE) lab in Niskayuna, N.Y., and Kelly would visit regularly as a boy, watching his father work with vacuum tubes and other technologies. Kelly got a PhD in materials engineering at Rensselaer Polytechnic Institute. At IBM, he ran one major research department, in between stints in the chip division.

IBM's collaboratory strategy emerged from Kelly's management of the chip unit during a challenging time. Going it alone in chip manufacturing had become prohibitively expensive, so, starting six years ago, Kelly forged joint development deals with eight corporations, both U.S. and foreign, and helped New York State establish a nanotechnology research facility.

When Palmisano handed Kelly the research job two years ago, he urged him to help further IBM's ambitious global expansion plans. Within weeks, the collaboratory concept was born. "I became convinced you can do real radical collaboration if all the stars align," Kelly says.