Taking the long view in recovery

At the height of the 21st Century’s first decade, the bubble burst. Much of the fallout since then has been negative, and we’ve heard about it, ad nauseum, since. Today? We’re recovering slowly or on the verge of a double dip (depends on who’s interpreting the admittedly grim figures). But there is one positive phenomenon that grew up in the bubble and has, thus far, to the eventual benefit of all, survived it. It’s called open innovation.

In simplest terms, open innovation is a special type of public/private/academic research partnership. Such partnerships are anything but new. We’ve grown used to a wide variety of them, intended to incubate promising technologies. They haven’t gotten a lot of press lately (positive or negative), what with all the talk of national bailouts, calls for fiscal austerity and the still very present threats of economic turmoil. Problem is, they are particularly vulnerable in such a climate because many are driven by governmental mandates. In the U.S., for example, Small Business Innovation Research funds are available to academic/private industry partners, but these funds are typically tied to government priorities, often in the realm of national security. (See, for example, “An out-of-autoclave progress report,” under "Editor's Picks," at top right), where CW conference director Scott Stephenson highlights a recent presentation by Dale Brosius, president of Quickstep Composites, the U.S. arm of Australia-based Quickstep Holdings Ltd., on the latter’s SBIR-funded development work for the F-35). A private entity that hopes to raise R&D funds  frequently must tailor its plans to suit another’s priorities: Entreperenuers create, but then someone else directs and determines the course of development. Just as often the technology already must be mature enough to serve a present need if it is to merit funding.

The key to understanding the subject at hand, however, is the word open. In the open innovation concept, industrial companies, government agencies and technical universities pool funds and other resources to expedite precompetitive research, often research of a very basic kind, often without a clearly defined destination in mind. The program leaves open the possibility that commercial applications will present themselves as the research progresses.

Precompetitive research is nothing new. Composites, in fact, are a central focus of precompetitive efforts at Oak Ridge National Laboratory (ORNL, Oak Ridge, Tenn.), where the U.S. Department of Defense is sponsoring an ongoing effort to bring to commercial viability a less-expensive alternative (lignin is a contender) to the current precursors (polyacrylonitrile, rayon and pitch) from which carbon fiber is made, toward the specific goal of making carbon fiber affordable in series production, in particular, for the auto industry. Likewise, the Big Three automakers in Detroit have for a number of years, jointly operated the United State Council for Automotive Research (USCAR, Southfield, Mich.), an umbrella organization that conducts cooperative precompetitive research. At the behest of the U.S. Department of Energy, this outfit is currently on the trail of composite materials and molding methods that will yield multifunctional one-piece floor pan/full underbody shields, a technology that will reduce manufacturing cost, increase fuel efficiency and eliminate undercarriage corrosion — something all three automakers desperately need if they are to survive a future in which U.S. corporate average fuel economy (CAFE) goals will spike above 50-mpg equivalency. Nothing “open” here, however. In both cases, the goal is to meet government expectations.

In open innovation, the government doesn’t determine the research focii, the industrial partners do. The rationale here is sound. The market, not the government, determines the research thrust. When private investors bring a proposal to the appropriate government agency, it may be accepted or declined. It is not, however, altered or redirected in the service of a particular goal.

Another difference: The agency often holds in trust any patents that are granted.  That may sound like a negative, but its not. This protects the government’s sizable investment. (In The Netherlands, where I first encountered open innovation, the agency contributes fully 50 percent of the funding; the other half is split between the private and academic partners.) But revenue from patent sales or licensing goes to all participants based on the size of their investment. Thus, the government always has the potential to recoup its investment, not to mention a high motivation to make the path to commercialization as free of unnecessary bumps as possible. But more than that, it gives the coordinating agency a powerful tool to use as it fulfills its part of the partnership agreement by pursuing commercialization paths for unintended/unexpected discoveries that base research generates, so as not to waste any of the research results.

A final but crucial result is that if the proposal is accepted, things happen fast. Under the “open” concept, the government agency’s job is to coordinate and expedite the process through to completion. The government agency, needing to justify its significant investment to the watching world of legislators and taxpayers, finds in that need a powerful motivation to produce results. It has good cause, then, to be proactive, ensuring on the front end that a proposed project has real merit (and won’t run afoul of existing regulations). As the program progresses, it sees to it that the project is not stalled on a bureaucrat’s desk or sacrificed to a legislator’s political whim. This results in earlier commercialization and job creation that has a lasting positive impact on the economy.

Like the government, a participating academic institution benefits as technologies are commercialized and money from patent licensing flows in. But that takes time. The most significant benefit, however, is much more immediate: University students are paid to do the actual research, supervised by professors and government/private engineers. This gives the university a powerful recruiting tool. Engineering students who know, going in, that they’ll do real work in their chosen field while they perform academically — not as an unpaid intern but a fully paid employee — is more likely to choose that school over one that offers less. Further, the student frequently works for an extended period on a single project. Big advantage here: He or she becomes a known quantity to the industrial partner which wants nothing more than to find qualified, experienced employees. New hires from conventional academic programs typically take from two to four years to acclimate to an industrial environment and realize their productive potential. During that “break-in” period, employers bear, alone, the high cost of training them in the practical aspects of their businesses. But a graduate who has worked in that company’s precompetitive research program is skilled and ready on graduation day. In one locale where the open innovation is well developed, 80 percent of participating students find their first job this way. And that fact is the school’s best advertisement for its educational prowess.

The industrial partners? Multiple benefits: They can raise capital for early work that typically can’t attract high-profile investors. They don’t have to spend what money they have lobbying legislators, hoping to get a slice of the pork. And they have not tied themselves to a government program that, at any moment, could lose funding when political winds blow a different direction or, for example, that government’s involvement in Iraq or Afghanistan winds down. The emphasis is on supporting R&D for the technology’s sake, with a wait-and-see approach on the applications.

In sum, everyone wins. Open Innovation is pro-business, pro-taxpayer and, ultimately, pro-consumer. Unlike stimulus programs, bailouts and traditional government job-training schemes, it gives willing governments a tool for stimulating the economy that has built-in potential to pay its own way. It gives the academy an educational tool that can generate future funding and attract students. It gives students not only a means to defray the expense of their education but also the real-world experience they need to capture a real-world job.

Finally, open innovation promises, in theory, sustainable technologies: Small seeds that can grow into problem-solving, market-satisfying solutions that create jobs.  But how does it work, in fact? Next time, we’ll begin an Open Innovation tour, to investigate. First stop? My first stop, The Netherlands, where we’ll observe open innovation programs in a real-world environment.