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Friday, October 29, 2010

The Profit Motive

By Michael Totty

The Battelle Memorial Institute was founded in the 1920s to encourage "creative and research work and the making of discoveries and inventions." When it opened its doors on the eve of the Crash of 1929, it had fewer than 50 people, dedicated mainly to metallurgical research.

Today, the Columbus, Ohio-based nonprofit—whose motto is "the business of innovation"—employs 23,000, runs an in-house research-and-development lab and manages or co-manages eight national laboratories for the federal government. The institute also conducts contract research and development for companies, mainly small and midsize businesses that don't have their own R&D shops. And it does contract manufacturing—for instance, it makes parts of the cockpit display for the Army's Black Hawk helicopter—and maintains its own venture investment fund.

Its most famous product is the office copier. Chester Carlson, a New York lawyer, had invented a method to duplicate printed documents but lacked the backing to commercialize the technology. In the early 1940s he took it to Battelle, which developed Mr. Carlson's concept and later licensed the technology to the company that would become Xerox Corp. Battelle's lab also has turned out the technologies behind the compact disc, automobile cruise control and the bar code.

The Wall Street Journal's Michael Totty recently spoke with Jeffrey Wadsworth, who has been Battelle's chief executive since early 2009, about managing a large research-and-development organization, fostering an inventive culture and what we get wrong about innovation. Here are edited excerpts of that conversation.

MR. WADSWORTH: When Battelle scientists think they have an interesting idea, they have what is called an invention disclosure, where they write down what that idea is. Then a group of people evaluate which ones of those are worthy of investing the money needed to have a patent application.

WSJ: What are the criteria you use?

MR. WADSWORTH: One of them is: Can you conceive of this invention creating a product that is useful to society and makes money?

Another way of thinking about it, which is more defensive, is to say, "We've discovered something. Somebody else may discover it, and we don't want to have to pay them for that. Therefore we're going to patent it to protect ourselves."

Most of the things that we're working on are a race to be there first. Innovation's good, doing it fast is better and doing something with it is really the objective. When we look at what we want to patent, we have to think, are we going to make money out of it? It's not like we want to patent in order to have a publication.

WSJ: Battelle has been doing this for a long time. Do you have a secret sauce, and if so, what is it?

MR. WADSWORTH: We are a different kind of company. We have a lot of labs and look like a university at some level. But we try to operate more like a business.

WSJ: How does that combination of pure research and a business orientation help foster innovation?

MR. WADSWORTH: Some universities—certainly not all of them—will leave discovery on the floor, or it won't get developed, because often a company will not want to invest in something that's available to everyone because they won't then have an advantage.

Industry will often work with a university to use the resources of the university and hold the information proprietary. That often isn't something the university wants to do. They want to publish.

We're in a different business.

If a client comes to us and wants to have us solve a problem for them and wants that kept extremely confidential and private, we do that. We have that capacity. We also conduct work for the federal government that needs protecting. We'll do basic research, applied research, but we'll also hold the results very, very confidential. And that makes us different.
Current State of Innovation

WSJ: We've seen an incredible wave of innovation over the past 40 years. How would you describe the current state of innovation?

MR. WADSWORTH: There are more people being educated in more parts of the world. There's more cross-fertilization.

People from other countries come to the United States because 17 of the top 25 universities in the world are still in the United States. In the '70s they came and stayed. But nowadays, you can go back to your home country with education and insights and the network you've built in the United States, and you can live with your family and eat your home food.

We built a nanoscience center at Oak Ridge National Lab and one at Brookhaven. When I went to Beijing about three or four years ago, I went to Tsinghua University—it's their MIT. They had a brand new nanoscience facility there. The building was filled with Chinese nationals who had returned from somewhere else.

[The director] had a name for them: They're called hai gui—sea turtles. They had gone out, and they've come back.

The work they were doing was just as good as ours. The equipment they had was just as good as ours. The facility was just as good as ours. And the people were just as good. Technology evolution and development is far more global than it was.

Another thing that's happened is that the ownership of the entire lineage of discovery is no longer found in a company. I worked at Lockheed in the early '80s. Lockheed is very much like other big companies. They did not like to rely on other people for critical parts of their discovery chain.

It was almost seen as weakness if you had to go and get help from somewhere else. That not-invented-here syndrome has markedly moved to one we call "proudly found elsewhere."

That's a big shift.

WSJ: You're a big organization devoted to innovation. How do you avoid the problems of big organizations?

MR. WADSWORTH: If you'd talk to some of our people, they'd say we haven't. Because when you get to be very big, you end up putting a lot of processes in place to ensure that you're not violating the plethora of regulations, rules and expectations of big organizations. That can become stifling.

We all try to minimize it by being aware of it.

And at the same time, you can't expose the company to devastation by having a small group do something that's not being monitored and they get into trouble.

WSJ: How do you do this?

MR. WADSWORTH: It's impossible to know everything that's going on at an organization like ours. Often what you do is—we call it a deep dive. So that's one thing we do: Get data from the people who work for you.

Another way is to constantly benchmark.

I'm not a huge fan of benchmarking, because you're comparing yourself to the current, not the future. But if you find you have 10 times as many people in some support function as everyone else—first of all, you need to know that. Then you have to ask why. It could be a good answer, but it might not be.
Fostering Innovation

WSJ: What can you do to foster a culture of innovation?

MR. WADSWORTH: The tone at the top for what you want to see done is absolutely essential. If you tell a laboratory that you're only going to do basic research and that's all we're going to value, you won't get the same productivity commercially as you would if you say, I love basic research, but I also want to embrace the fact that we're here to put products out to the community, to the country, to help foster economic well-being for the United States.

You can encourage it in lots of ways financially. You can give rewards for things that you want to have done.

This is manifest throughout industry and universities. They'll have different ways of rewarding people for innovation. If you publish a patent, you get $1,000, or you get $1 in a frame. Or you get a piece of the action going forward. There are lots of ways that companies and institutions try to financially incentivize new thinking.

WSJ: What are some common misconceptions about innovation?

MR. WADSWORTH: The first one is the Edisonian thing. There is no Lone Ranger.

Most of the things that I've seen be successful have come from remarkably complex teams. If you want to have a successful enterprise, every job has got to be important. You can have the most innovative thing in the world, but if you've got terrible lawyers and terrible accountants and terrible people dealing with customers, it's not going to get out.

Another myth is that stuff happens fast. It doesn't. Xerox was in Chester Carlson's head for a decade before he came to us, and it took two decades to get it out.

The examples you hear about very, very fast return are iconic, but not typical. You'll hear about something being invented and three years later somebody's a billionaire, but I think under close inspection you'll find there's a lot—maybe decades—of work behind it.

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