Unlocking innovation: CEOs are learning how to better tap university R & D. The results could be powerful

Chief Executive, The, June, 2005 by Rebecca Fannin

Luis Mejia of Stanford University recalls the fall day nine years ago when Larry Page, then a Ph.D. student, came to Mejia's office of technology licensing to patent his search engine software, called PageRank.

The patented software had been available for licensing for almost two years, but no company pursued it, says Mejia, who matches Stanford research that could be commercialized with companies seeking ideas. So without any suitors, Page and his partner Sergey Brin founded a small upstart company named Google based on their search engine software, and the company's IPO last year not only made Stanford $190 million but was also the biggest event in the tech world since the dot-com boom.

The story speaks volumes about the state of university-corporate collaboration when it comes to developing tomorrow's innovations. For decades, corporate R & D leaders and university researchers have looked at each other across a broad chasm: Companies have wanted access to research they can commercialize quickly, often within a fiscal quarter, and they've had scant patience for the academic pursuit of the frontiers of knowledge, or basic research. The universities, meanwhile, have been suspicious of corporate motives, often believing that company researchers only have dollar signs in their eyes. The end result has been that only a tiny fraction of university innovation, an estimated 6 percent, has actually reached the marketplace.

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With potentially dozens of undiscovered Googles lurking within the Ivied halls, key decision-makers on both sides are beginning to realize they need to narrow the gulf between them. Universities are worried that federal funding is being reduced. And CEOs of the likes of Intel, HP and IBM believe that unlocking university research is one of the keys to starting a new wave of U.S. innovation.

As a result, a pattern of much more intimate relationships is unfolding between top research universities and major technology companies. "Universities are a tremendous source of research," says Patrick Scaglia, vice president and a director at the Palo Alto, Calif.-based HP Labs, the central research group at Hewlett-Packard. "But if you look at it as a way to develop a product for the next quarter, it won't work that way." Tapping universities for research requires a long-term view, he notes, and often up to a decade or more of diligent R & D with no guaranteed payback and few home runs.

While there is no single formula for working with universities to tap research, HP is among those leading firms that have crafted an approach, using sponsorship of grants, fellowships, research projects and "pie-in-the-sky" theoretical research to tip the research curve.

IBM, one of the top corporate innovators in the country, taps similar sponsorship, but also uses its Ivory Tower connections to capture the best and brightest ideas and students, says Robin Williams, associate director at the San Jose-based IBM Almaden Research Center, one of eight IBM research facilities worldwide.

Intel goes so far as to place one of its four research "lablets" at the University of California Berkeley campus, where students, professors and Intel researchers work side by side on inventions that will make tomorrow better, says Joe Hellerstein, director of Intel Research Berkeley.

The reason these more proactive approaches are needed is that the U.S. is losing its competitive edge worldwide as funding for research decreases and basic research gives way to more practical, project-oriented work, says Johns Hopkins University president William Brody. He notes that U.S. federal research and development spending peaked in 1965, at just under 2 percent of GDP, and has dropped to 0.8 percent today. He adds that Asia now produces three times the number of scientists and engineers as the U.S., and Europe more than twice that number. And he notes that the U.S. edge in high-tech exports is slipping, from 31 percent of global high-tech exports in 1980 to 18 percent today while Asian markets, excluding Japan, have climbed from 7 percent to 25 percent of high-tech exports over the same time frame.

"I'm worried that the U.S. is moving away from risk-taking," says Brody, recalling that America's history is built upon discoveries by pioneers Henry Ford, John D. Rockefeller and Bill Gates. "Innovation leads to productivity gains, [which] leads to GDP growth," he says. The current lack of risk-taking and innovation will "eventually drive America into second-class status," argues Brody, who is co-chair of the Council on Competitiveness's National Innovation Initiative.

The harsh warning is echoed by Deborah Wince-Smith, president of the Council on Competitiveness. "There is a direct correlation between productivity and innovation and this is a first-tier economic priority for the country," she says. Noting a consistent decline in commercial and federal spending for innovative and risk-taking research, she believes that universities can help fill the gap. "Universities are an anchor for innovation and can be regional hot spots with profound impact on the ecosystem of an entrepreneurial culture," she says.