Toward a Business Model for Industrial Participation in Cooperative Research Centers

Toward a Business Model for Industrial Participation in Cooperative Research Centers Denis O. Gray, PhD Drew Rivers, PhD North Carolina State University Raleigh, NC USA

Background • Cooperative Research Centers (I-U-G) are immensely important to the U.S. “innovation system” • 1,500-5,000 • 70% of industry support for universities (Cohen et. al, 1994) • Industry funding = 7.5% • “co-mingled research” (I-G) ~ 20-25% university research • Major Focus of number of government agencies • NSF, NIH, DoD, DARPA • Assumed to have a big impact on “technology transfer” • Primarily in the form “strategic fundamental research” • IP and invention typically happen within firm

Background • Conducting research on CRC operations for two decades • Recent studies have had an industry focus: • Trying to estimate the economic value of various center benefits (e.g. cost avoidance) • The critical roles played by the IAB member • Understand the factors that affect the decision to join/not join a center • Industry member challenged us to move beyond tech transfer to produce a “center business model” (BM) • a comprehensive model that explains and justifies a firm’s involvement in a CRC

Motivation • Universities/Centers: • Recruiting firms is an expensive and time consuming activity; pursue 10-20 for every membership • Need help “selling” CRC • Firms: • CRC champions find it increasingly difficult to justify membership in these centers • Need/want help explaining the benefits to their management • Policy • Help provide guidance for the construction of new partnership-based models • Theory • Help explain what makes some CRCs vital and others not

Foundation for BM Thirty Year Program of Research on NSF Industry/University Cooperative Research Center (IUCRC) and related programs (STC) Program Processes • Communication Networks in IU Centers (Eveland) • Assessment of technology gatekeepers (Tansik) • Evaluation of inter-center (“tie”) cooperative research projects (Goodrich) • Role of industry boundary-spanner in promoting center outcomes (Tarant & Gray) Studies with Comparison Groups • Comparison of IU Projects vs. IU Centers (Gray) • Follow-up evaluation of IUCRC graduates (Scott) • Unintended consequences: IUC impact on student academic freedom (Behrens & Gray) Across Center Comparisons • Technology transfer processes and outcomes (Russo; Scott; Geisler) • Analysis of strategic planning strategies used by NSF STCs (Steenhuis and Gray) Multivariate Predictions • Multivariate prediction of member retention (Gray et al) • Space of innovation: Impact of IUC work space on collaboration & innovation (Toker) • Multivariate prediction of faculty outcomes (Meagher & Gray) • Predictors of center student satisfaction and other outcomes (Schneider & Gray) • Why firms join cooperative centers (Rivers) Outcome Assessment • Quantifying benefits of member participation: cost avoidance (Gray and Steenhuis)*

Assumptions for a CRC BM • Opportunity to access a portfolio of benefits • Need to understand the array of benefits firms might want to access • Membership also involves risks • Need to understand the potential risks like non-exclusivity of IP • Benefits require making investments and having certain capabilities • Members have different business objectives and weight the significance of specific benefits differently Business model makes sense for specific firm; what makes sense for one firm may make no sense for the next

CRC Human and Physical Capital Scientific Input Financial Support (Memb. Fee +) Time Guidance Expertise Business Objective Social Capital

CRC Human and Physical Capital Faculty, Students Networks; Facilities Scientific Input Financial Support (Memb. Fee +) Time Guidance Expertise Highly Leveraged (~20-1) Multidisciplinary Research Program Primary (Other members) and Secondary Networks (colleagues of faculty, etc.) Social Capital

CRC Exceptional Graduate Students Informal Consulting One-of-a kind Facilities Human and Physical Capital • Ideas & Feedback • Enhanced • recruitment of • new employees • Increased absorptive • capacity • Access to unique • Facilities • $??? Scientific Consensus on Industry Problems/Issues Identify/Influence Partners & Supply Chain Ideas from extended network Social Capital Strategic reconnaissance and alliances Entrée to Other Scientists

Not relevant to this firm Human and Physical Capital Research Very relevant, would do yourself within 1-2 years Research Amplification Near core competence Highly relevant, would like to do if you had more time or money Emerg- ing/ Competitive Tech. Outside core competence but might be helpful or destructive Social Capital

Human and Physical Capital Research Very relevant, would do yourself within 1-2 years Cost avoidance ~$200K Center IP Research Amplification Near/ core competence Dead ends to avoid Shortened/accelerated progress on current projects Promising new areas or paths to pursue IP inside firm $???? Highly relevant, would like to do if you had more time or money Emerg- ing/ Competitive Tech. Outside core competence but might be helpful or destructive Anticipate and respond to transformational or destructive Technologies $??????? Social Capital

Ideas & Feedback • Enhanced • recruitment of new employees • Broadened scientific • Network • Equipment use CRC Human and Physical Capital Later Proximate Near Near Core Competence Research Research Amplification Emerging/Competitive Technologies • R&D • Dead ends to avoid • Shortened/accelerated progress on current projects • Promising new areas or paths to pursue • Emerging threats and opportunities Commercialization • Early access to … • New knowledge • New analytical tools and methods • Tacit knowledge about techniques • IP within Center • IP/Trade Secrets inside firm • Improved/New • Products • Processes • Services Social Capital Strategic reconnaissance and alliances

Strategic Research Relevance Why they joined • “We don’t do in house very much theoretical work to advance the state of the art. However, sometimes we get right at the edge of or beyond our ability to do certain kinds of calculations or certain kinds of analyses. Its good to have an internationally recognized entity that you can go to get support in these kinds of situations.” (Construction firm) • “Well, we as a company and an industry are I think looking at externally harvesting innovations from sort of parallel industries. …there are many technologies and products that could be married to our products that we see that are available that we’d like to pay more attention to, and thought this would be a good forum to engage on that.” (Packaging firm)

Internal Center Network Research Input Financial Support -Memb. Fee Absorptive Capac. -Time, $ -Expertise Research Amplification Business Objective Business Objective External Center Network

Strategic Research Relevance Did not Join: • “The first decision was ‘is it strategic to what we’re doing?’ And when the answer was obvious to me that it was not, then we didn’t make any progress on any other matters”. (Agricultural products firm) • “...We already had a program in place [in a very critical area] and all the mock ups; there really wasn’t much they could contribute to that really. They were behind us in this particular area. Some of the projects they do weren’t really that relevant exactly to what we were doing” (private R&D supplier)

Strategic Research Relevance • “... we have to present first a business case that outlines the Net Present Value of the research that’s going on in our company...what benefit might the internal program get from joining the center... it [our project] was deemed to be fairly early in development...the value was sort of fuzzy because we were early on...the decision was because of the lack of clear net present value type evaluation on what we were trying to do, that we would not join the center...3 or 4 months later our joint project was cancelled”. (Large Chemical Company)

Internal Center Network Research Research Amplification Near/ core competence Decision Making & IP Input Financial Support -Memb. Fee Absorptive Capac. -Time, $ -Expertise Business Objective X X Emerg- ing/ Competitive Tech. External Center Network

Other Strategic Factors IAB Composition Joined • “Access to customers in the US was a primary benefit or reason for joining. The current members were key players in the US industry” (chemical firm) Not join • “We know where our competition is and we pretty much avoid that universe.” (Aerospace/ defense firm)

IP Concerns Joined • “The IP issues with the legal guys was a problem, and the overriding thing there was that we said, “...the chances of our divulging anything to the center that is going to be a problem is low...In terms of how we take advantage of the IP the center generates...although nobody liked it [agreement]...but not too different than other university deals we get into” (Industrial equipment/components firm) Did not join • “[My initial impression was] basically a windfall for our company...my legal people did not recommend that we sign up for that [NSF document] agreement...a typical university grab involved in IP” (Aerospace/defense firm).

Firm Capabilities Did not join Financial • “... Financial limitations have kept them from joining.” • “one reason is financial, basically the budget reason”. • “Sometimes when the economy is good and we have some extra money and say, “Let’s spend it. Let’s find something”

Firm Capabilities Absorptive Capacity • “...we felt we were not ready yet. In other words, what they do is a little far reach for us. We haven’t got the knowledge base, we think, to utilize their output. “We’re not doing a whole lot ourselves, so our decision was “OK, let’s start it ourselves and do a little bit of work so we understand it better, then in a couple of years we’ll try them out.” (Automotive equipment/ components firm)

Summary • CRCs are complex cooperative R&D mechanisms that have the potential to deliver a diverse portfolio of benefits but also contain some embedded risks • Firms also add complexity to the mix: their ability to extract value from a CRC will depend on their business objectives, their inputs, investments and capabilities • The proposed CRC BM provides a vehicle for firms and centers to try to make sense out of the CRC value proposition • Key reminders • Centers need to attend to all three benefit subsystems: scientific; human and physical capital; social capital • Firms must invest $, time, expertise and provide guidance to insure benefits are extracted • Beauty is in the eyes of the beholder: the importance and likelihood of specific benefits will vary from firm to firm • Centers need to engage members carefully to be sure they are meeting their needs

Acknowledgement Funding for this study provided by NSF IUCRC and STC program.

Toward a Business Model for Industrial Participation in Cooperative Research Centers