Comparing Innovation and Technology Transfer in Industry and the Academy

1. Comparing Innovation and Technology Transfer in Industry and the Academy Louis Manzione, PhD Dean College of Engineering, Technology, and Architecture University of Hartford Inventors Association of Connecticut March 27, 2012

2. The Changing Innovation Landscape in the US The Past • The United States dominated the world landscape in Innovation in the 20th century. No other nation was even close particularly after World War II. • Many of these innovations were world-changing and created entire new industries. Enormous wealth was generated for American companies and American workers. • Several institutions built outstanding reputations for innovative technologies: These include companies such as: RCA, Bell Labs, IBM, HP, General Electric, Texas Instruments, Xerox, and General Motors. • The majority of the truly revolutionary innovations came from corporate labs, small companies, and inventors. Often these innovations were derived from “high barrier to entry” technologies. • Universities played a much smaller role in the nation’s competitive position, focusing more on scientific work that related to their internal merit systems of scholarly publications.

3. Let’s Look at Bell Labs for Case Studies “True Innovation” by Jon Gertner NY Times Opinion Article on Feb 25, 2012 from the upcoming book: “The Idea Factory: Bell Labs and the Great Age of American Innovation” An incredible record of revolutionary innovations . . . . Charge Coupled Device (1969) Transistor (1947) 2009 Kodak first digital camera 1975 TeleStar Satellite Communications (1962) 5 yrs. after Sputnik 1956

4. The LASER (1958) Undersea Cables FAX Machine (1928) Trivia: What famous athlete was pictured in the first FAX image sent over telephone lines in 1928?

5. Radio Telescope (1933) Karl Jansky Proof of the Big Bang Penzias & Wilson (1964) Cellular Wireless Networks 1978 George I. Zysman (1980)

6. Information Theory Shannon’s Limit Worked with John von Neumann at Princeton Institute for Advanced Study and Alan Turing at Bell Labs (while he was a visitor there studying voice coding). Claude Shannon “A Mathematical Theory of Communications” Bell System Technical Journal (1948)

7. The Venn Diagram of Information Theory Importance of Collaborations and Access to Experts Bell Labs Cambridge AT JvN Institute for Advanced Study MIT CS

8. UNIX C & C++ Ken Thompson, Brian Kernighan, Dennis Ritchie (1970) They were developing an early computer game called “Space Travel” and they needed a more efficient operating system to run the game on a little used PDP-7 at Bell Labs. Troff was first word processing software; it was built on a Unix platform

9. The Culture of Innovation at Bell Labs • Access to world class experts in many fields • Long range time horizon • Non-specific assignments: “Get the best people and get out of their way” • Quasi Tenure System (Risk taking encouraged) • Access to the needs of the industry

10. Trends that Caused Corporate America to Lose Interest in Long Term and Basic Research • The Innovators Dilemma • Strict Financial Metrics and Quarterly Results Reporting • Explosive Growth of CEO Compensation • Fast Follower vs. Bleeding Edge • What we learned from Toyota

11. The Innovator’s Dilemma When New Technologies Cause Great Firms to Fail Clayton M. Christensen Harvard University Press (1997) 1. Companies depend on customers and investors for resources. Customers drive internal decision making because companies are resource-dependent. 2. Small markets don’t solve the growth needs of large companies. Large companies are not interested in small emerging markets, and they wait too long. 2. Markets that don’t exist cannot be analyzed. 4. An organization’s capabilities define its disabilities. 5. Technology supply may NOT equal market demand.

12. Strict Financial Metrics and Quarterly Results Reporting • Research work does not fare well in an environment of emphasis on financial metrics and making quarterly financial targets. • Look at the CCD (1969) and the FAX Machine (1928). The markets for these developed more than 30-40 years after the seminal work. • Are companies managed on these time horizons anymore? Explosive Growth of CEO Compensation • Emphasizes near term performance versus long term positioning. • Focus on markets where you are first or second where the margins are greatest. • Significant dependence on stock options, so motivation to grow stock price in the near term.

13. Kraft Gave CEO $15.7M; 17% Pay Bump NEW YORK (AP) March 27: 9:45 am — Kraft Foods Inc. gave its CEO a pay package worth $15.7 million in 2011, which represents a 17 percent raise from the previous year. The compensation for Irene Rosenfeld included a salary of $1.5 million, stock and option awards worth $9.7 million and incentive-based compensation of $4.2 million. All other compensation came to $276,000 and covered costs for use of the company aircraft, car expenses and retirement plan contributions. The pay bump for Rosenfeld was largely the result of her incentive-based pay, which Kraft determines with a formula based on total returns to shareholders and growth in net revenue and operating earnings per share. Rosenfeld, 58, took over as CEO in 2006.

14. Fast Follower versus the Bleeding Edge • Japan Inc. and many other firms taught that it may be more effective to perfect others’ technologies versus innovating them on your own. • Cisco – no real research division. They buy up companies that emerge with winning technologies. • Easier to be “agnostic” w/r technology solutions. • Most products will ultimately become commodities – be the first to commoditize. • Is the patent system effective enough to protect innovators. What we Learned from Toyota • With rising labor rates in the developed nations, product quality became increasingly more important. (Near the end of the CRT TV era, one TV repair could exceed the initial price!) • Car repairs are often 10% of the initial vehicle price. • Margin was increased not on marketing campaigns, but on manufacturing efficiencies and manufacturing excellence leading to high reliability. • The long lead times for automotive innovations allowed even slow followers to use earlier innovations to market advantage.

15. The Changing Innovation Landscape in the US The Present • Corporate research labs are diminished in scale and scope as American industry has aligned with stricter financial metrics around quarterly results and nearer term pay-back periods for investment. • Premier American corporations operate more in an integration mode – they exploit, reshape and recycle innovations into effective products and services. Examples include Apple, Microsoft, Google, Facebook, Oracle, and IBM. • Competitive advantage is usually based on 1) first to market and interoperability advantages, 2) Superb User Interfaces, 3) Innovative Applications of Known Technologies, and 4) generally low barrier to entry products and services that are defended by the above three characteristics. • Universities that are increasingly focusing on innovation. Although they clearly have the human resources and actually enjoy cost advantages over corporations, innovation is not an integral part of their reward system and they are not well informed of the critical needs in the market. • A growing and critically important entrepreneur culture that can use contracted assets to overcome barriers to entry.

16. Let’s Look at APPLE • Apple has been wildly successful without major technical breakthroughs. • Classic Fast Follower model with emphasis on user interfaces and physical design. • They overcome several important innovator’s dilemmas: • They do not allow the voice of the customer to drive their product development. • They are not disabled by the abilities. They were willing to step outside of their comfort zone. • They did not worry about analyzing markets that do not yet exist.

17. The Future Innovation must come from the Universities, small companies and start-ups, and individuals who will take their innovations directly to the market. How does this happen?

18. Let’s Compare the Innovation Culture at Bell Labs To the Future Innovation Engine of the United States: Universities, Small Companies, Individual Inventors Universities Start-Ups Ind. Inventors Access to experts Long range horizon Non-specific assignments Quasi Tenure – take risks Understand Needs 0 X ? 0 X 0 X X X ? ? X X X X

19. How to make the transition on Innovation From Multinational Corporations to Start-up and Inventors Skills inventories – where to find experts Services that Match Needs to Solutions Growing partnerships between Universities, small companies, start-ups, and inventors. Create a National Lab of Innovation that recreates Bell Labs. Thank You! Questions?

20. Red Herring, May 2002 Nanotechnology, like the railroads, autos, and computers, is what is known as an enabling technologies meaning it is often not the end product, but a means to making better end products in a variety of fields.