Is the US losing its innovation edge?

Corporations today are focusing on ROI in the near term, not basic primary research

Three years ago, Geo Strategy Partners was hired by an architecture firm specializing in lab space to determine if a boom in purpose-built nano/materials science buildings witnessed in university and national lab facilities was taking place in the private sector as well.  The firm was interested in benefitting from activity in the private sector- and identifying most likely candidates for design work.  We interviewed corporations, research universities, other architecture firms specializing in lab space, national laboratories, and equipment suppliers.  All signs pointed to an utter lack of demand for private sector purpose-built nano-facilities.  We understood why basic research activity occurred at research universities: better facilities = ability to attract imminent scientists, better graduate students, corporate and DARPA money.

However, our research revealed a darker story in the demise of big corporate labs.  We heard from multiple respondents in the private sector that R&D funding is only available for ideas that can be commercialized within a specific time frame, generally less than three years.  Because primary research (the application of theoretical concepts to potential but speculative uses) doesn’t guarantee a return on investment within a three-year window, basic primary research has been relegated to a no-man’s land in corporate America.  Because the commercialization of innovation is sometimes distantly connected to primary research, it is not hard to understand why US corporations are neglecting it.  But this is not a sustainable state of affairs for our economy as a whole.  The discontinuity is the need for corporations to accelerate technology adoption and commercialization through the value chain.

It wasn’t always that way…

Stanolind Oil invested decades of development hours and lots of dollars before the technology for hydraulic fracturing was proven and commercialized.  Hydraulic fracturing is now making a number of companies as well as select landowners wealthy.  New?  No.  Fracking dates back to the 1800’s but it was the vision and financial commitment of Stanolind that ultimately led to the technology coming to market. The same is true of Intel’s Pentium 4 processor, which relied on the development of strained silicon from work at AT&T Bell Laboratories.

In spite of immense focus on the topic of game changing innovation in corporate America, the reality is that innovation today is generally incremental.  There are exceptions: we learned in our research that Dow Corning still conducts basic materials research in-house.  Dow Corning is also a member of the Centre for Advanced Photonics and Electronics at the University of Cambridge.  In our study, we witnessed many corporations besides Dow Corning developing partnerships with university-based researchers to supplement the primary research gap.  However, according to the World Academic Summit Innovation Index compiled by Times Higher Education, the US lags 13 other nations in the support corporations provide to university researchers.  South Korea ranks #1: corporations invest an average of $97,900 per academic researcher in Korea versus $25,800 in the US.

Limited corporate focus on basic materials research, anemic corporate investment in university researchers, and budget pressure on US national laboratories which inhibit their ability to engage in primary research all point to the same outcome: a possible loss of US competitive advantage in manufacturing and technology innovation.  Jeffrey Moore’s 1991 book “Crossing the Chasm” explained the challenge and illuminated the path to commercialization of consumer technology.  The chasm between game changing innovation and downstream supply chain adoption in business-to-business markets is wider.  The challenge for US industry is to (a) find a way to bridge the chasm in order to make a compelling case for investment in primary research and (b) drive adoption of game-changing innovations through the value chain.