Falling behind in R&D? US leads the world in research spending, but takes longer to get new products past corporate bureaucracy to market
After years of research, it is often a flash of brilliance - a new insight, a new process, an invention - that makes all the difference to a company facing stiff competition. The birth of new ideas is crucial to progress and profits, and spending on research and development (R&D) to deliver new products is considered a crucial yardstick for measuring the future ability of corporations and nations to compete.
Last year, United States companies, the federal government, and universities spent more than $120 billion on research and development, according to the National Science Foundation. That is more than Japan, West Germany, France, and the United Kingdom spent together.
Now, however, there are signs that the R&D boom years of the 1980s are over - at least in the US. American companies have slowed the rate of increase in R&D budgets, while companies in Japan and West Germany continue to spend at proportionately higher rates.
In total dollars, US companies still spend more than the competition. But the puzzling question remains: What competitive edge is America getting for its money?
``Research and development in the US has become a bureaucratic sham,'' declares Martin Starr, professor of production management at Columbia University. ``R&D money has become so bureacratically contained that it does not get spent on creative ideas and new learning - but on areas whose potential has been thoroughly exhausted.''
After spending $58 billion in 1987 to innovate and create new products, why does US industry always seem to lag Japanese and German companies when it comes to getting products out of the lab and into the market?
``The real measure of rise or decline of R&D effectiveness is not to be found in the amount of dollars being spent,'' says Robert Reardon, an industry consultant based in Kansas City, Kan. ``It is more a matter of the business culture, philosophy, basic policies, within which that research is conducted.'' Mr. Reardon, Mr. Starr, and others cite the following problems, nearly all of them related to management, that stand in the way of making US corporate R&D efforts more effective:
Inertia. Complacency and short-term thinking based on a bottom-line emphasis protect companies from investment managers on Wall Street or even a corporate raider. There is also reluctance to dump investments in plant and equipment.
Lack of focus in managing R&D. Many top managers do not adequately understand what is going on in their research departments - and how technological developments there relate to corporate competitiveness, new products, and future profits.
Bureaucracy. ``You walk down the hall and count the people standing in the lab, running experiments - then count the people sitting behind their desks,'' says Lee Rivers, president of Technology Transfer Initiatives, a consulting group. ``Nobody invented anything at a desk.''
Some of these problems are beginning to be recognized. With increased competition from overseas, and continued concern about the bottom line, the methods and value corporate managers place on R&D is changing. From slithery experiments with seaweed to superconducting-ceramics testing, US companies are eager to wring more short-term gains from what has always been a long-term process.
R&D productivity, based on knowledge per man-hour, has increased dramatically because of better equipment, and faster data processing. Yet even the biggest companies are finding it impossible to invent everything needed to stay competitive, says Donald Coyne, president of University Technology Services in Tucson, Ariz.
Dr. Coyne spent years as a technological ``gatekeeper'' - keeping an eye on the technological developments in about 300 university labs looking at up to 500 inventions a year - then turning around and selling them to companies.
``In the '60s and '70s, everybody thought they could do it themselves,'' Coyne says. ``The `not-invented-here' syndrome had a grip on US industries for years. ... Now with competition from overseas, companies have taken a short-term outlook. They don't have the new products for further development and marketing - their new product pipeline has dried up.''
Pressed hard by Wall Street and invading imports, profit-conscious company managers are asking their research-and-development departments: What have you done for us lately?
``There certainly is a reexamination of the relevance of research and development,'' says Wayne Burwell, chairman of the Industrial Research Institute's R&D counsel. ``That is exactly the question corporate management is asking. The answer is that when research is more sharply focused, it produces results in shorter time.''
Nynex, the New York-based telephone company, is trying for a sharper, more product-oriented edge on its research. In April, the company opened a new science and technology center in Harrison, N.Y. This center will help Nynex work more closely with marketing people to develop products from technology discovered at company and university labs. One of its promised first products will be an optical-fiber service to let advertising agencies and others transmit art in very high-definition over phone lines.
Ocean Genetics of Santa Cruz, Calif., a biotechnology company, is serving a niche of its own through joint contract research projects for bigger companies interested in its efforts to turn seaweed into agricultural chemicals, human food, and animal-feed additives.
Mergers, hostile takeovers, and the sale of company divisions to avoid takeovers have torn apart and squeezed long-term R&D programs, Reardon says. He refers to a pervasive ``short-term'' or bottom-line mentality by management that disrupts the process. ``It's not like taking a salesman off the road. ... When you cut back research, the results aren't as immediately observable to the bottom line - but they are longer lasting.''
But others believe there have been some benefits to the cutbacks in R&D. Mr. Burwell, who is also director of research at United Technologies Inc. in Hartford, Conn., says wise managers have been more careful with trimmed budgets, some forming alliances with universities and small companies to get ``windows on technology.''
``We're getting more bang for the R&D buck,'' Burwell says of United Technologies. His R&D department spent two years just talking with Thinking Machines Inc. of Cambridge, Mass. The companies exchanged information about computing fluid mechanics, heat transfer, and materials structure on one of Thinking Machines' unique 64,000 processor ``massively parallel'' computer. Initially, there was no thought about buying a computer, only a desire to understand its technology.
``No money changed hands for a long time, though we eventually bought one of their machines,'' Burwell says. ``We have a detailed understanding of how their architecture works, where it is of advantage. Both companies ended up substantially ahead of the game.''
Many experts believe there is still a crying need for this kind of insightful management. ``The biggest problem we have is not doing research, but getting management to say, `OK guys, this is where we want the business to go, and these are the new technologies we want to get there,''' says Robert Walde, former director of research at Gulf Oil Corporation, who now runs several small high-tech companies.
Many US businesses and universities ``are not focused in both targeting research, and thinking through purposes of the research. ... We don't have our eye on the ball,'' says Ted Lyman, associate director of the center for economic competitiveness at SRI International, a Menlo Park, Calif., contract researchcompany.
But many companies are victims of management's complacency, and ``inertia,'' says Mr. Walde. ``The ultimate determinant of the value of research is what people do with the knowledge they produce. Everybody agrees the area the US is lacking in is not generation of knowledge, but the reluctance of industry to take the risk of integrating new knowledge into their business. So far, the Japanese have beaten us at bringing new knowledge into their business.''
A good example of attitudes putting US companies ``behind the eight ball'' followed the discovery of high temperature superconductors by scientists at International Business Machines Corporation. IBM, American Telephone and Telegraph, and a few other US companies are working to develop products from the discovery.
But a draft report by the Office of Technology Assessment, the research arm of Congress, says that most US companies are taking a ``wait-and-see attitude,'' while a dozen Japanese multinational manufacturing companies are vigorously pursuing high-temperature superconductor applications.
A recent Wall Street Journal story quoted the OTA report saying: ``Japanese R&D managers see HTS [high temperature superconductors] as a truly revolutionary technology, one that promises radical change in their business. The skepticism common in the United States is nowhere to be found.''
Researchers in two Tokyo loboratories, for example, are pushing ahead on applying superconductors to ship propulsion. One lab is trying to invent a propeller-less propulsion system, the other a superconducting motor that would turn a conventional propeller.
``There is no country in the world that can put together the R&D enterprise the US can,'' says Jules Duga, senior R&D analyst at the Battelle Memorial Institute, a contract research company in Columbus, Ohio. ``We don't use all the R&D we put on the shelf. There is simply a tremendous inertia and reluctance to change.
``I have great faith in the individual. There is no lack of management or administration, only a lack of leadership in industry. It's going to take some sort of inspiration to go back to basics of saving, working, and patience.''