transformation of industrial research, The

Issues in Science and Technology, Spring 1996 by Rosenbloom, Richard S, Spencer, William J

Industrial research in the United States has been transformed in the 1990s. Research managers have had to redirect their resources away from fundamental science and pioneering technology toward activities that are more relevant to current product and process development, more likely to produce results that can readily be kept proprietary, and more certain to produce a commercial payoff in the near future. They have restructured and resized their organizations in order to increase productivity and shorten the time required to bring new technologies to market.

The consequent diminution in industry's commitment to basic scientific research and the pioneering development of new technologies has been widely noted. As a Committee on Science, Engineering, and Public Policy study concluded in 1993, "in large corporations, effort is shifting away from central laboratories toward division-level effort with greater emphasis on risk minimization to meet the needs of today's customers." There is less agreement about where this is leading and what, if anything, could or should be done about it.

Clearly, the United States is at a crossroads. While industry is making major changes in R&D activities, federal funding of science and technology is also changing. We expect that the corporate research laboratory will survive as an institution but will be greatly transformed as it adapts to a new role. As firms become more dependent on external sources of novel technology, they will need to interact more effectively with university and government laboratories and with strategic industrial partners. The distinctive capabilities of a corporate laboratory will position it as the primary interface between the firm and those external institutions. Despite a diminishing role as the wellspring of new technology, corporate laboratories should gain increased significance as the pipeline by which the firm gains access to new technologies and the filter by which it selects out those essential to continuing innovation.

These developments will have consequences reverberating throughout the national system of innovation, calling for adaptive responses by government as well as strategic and organizational change within the firms themselves. Without a concerted effort by government, industry, and universities, the engines of innovation that have worked so well for the United States during the past five decades could be significantly impaired. Policymakers should not remain passive in the face of this fundamental transformation of the technological infrastructure. In what follows we try to identify some of the issues they will face and to suggest some promising directions for action.

A LITTLE HISTORY

Corporate laboratories dedicated to pioneering in science and technology emerged on the scene at the start of the 20th century, but the institution blossomed most fully in the United States following World War II. Inspired by Vannevar Bush's famous advocacy of the "free play of intellects working on subjects of their own choice, in the manner dictated by their own curiosity," encouraged by the commercial success of industrial discoveries such as DuPont's nylon, and stimulated by the climate created by generous federal funding for research in universities and industry, U.S. firms created numerous corporate laboratories dedicated to fundamental science and long-term development of pioneering technologies.

Like any other voguish activity, this one probably was carried to excess and attracted firms for whom research never made economic sense. Corporate research flourished most in organizations such as AT&T, IBM, and Kodak, whose dominant market positions cushioned budgets from the pressures of narrow margins and facilitated the fullest appropriation of profits ensuing from new technologies. As deregulation and the rise of global competition have forced greater corporate attention to the bottom line, discretionary expenditures such as research have come under closer scrutiny. The changes have been most severe among those firms most notable for their prior accomplishments in creating new technologies. For example:

* Overall employment at IBM's research division was cut by nearly 20 percent in 1993. An atmosphere once characterized as "IBM University" vanished.

* The David Sarnoff Research Center, under RCA ownership a pioneer in electronics technology (inventor of liquid crystals, for example), has become a contract research organization dependent on government funds for its long-term research.

* The continuing restructuring of AT&T is likely to stimulate further reductions in basic research efforts at Bell Laboratories.

Of course, there are also counter-currents. Some seasoned companies have continued to support pioneering research. Hewlett Packard, for example, has intensified its research commitment in the 1990s. New actors on the technology frontiers are beginning to play a role. Prominent among them is Microsoft, which recently established a substantial research organization focused on technologies likely to be significant five to 10 years in the future. But many of the new breed of high-technology firms in electronics and information technologies have eschewed traditional research organizations and chosen other strategies. U.S. leaders in the semiconductor industry, including Intel, Motorola, and Texas Instruments, now cooperate to fund research in universities and to develop precompetitive manufacturing technologies.