Relationships with academic institution scan play an important role in continuing to generate new value for shareholders if you know how to approach those relationships.
“The majority of companies decline or fail,” says Sheldon Buckler, board chairman of adhesives and coatings manufacturer Lord Corp., based in Cary, North Carolina, “because they fail to continue to generate new value, and this generally happens through some form of innovation.” And of course, Lord Corp. is not alone in its commitment to innovation. Innovation is the mandate of the day, and it has companies increasingly looking outside of their own organizations for new ways to grow. At the same time, shrinking federal research budgets are forcing universities to find alternate sources of funding for their work. Consequently, just as companies are searching for new capabilities, sources of knowledge and means of growth, universities are feeling the urge to come down from the ivory tower and do business with corporations in order to keep their labs open. This unique timing means that there is unprecedented opportunity for successful partnerships between universities and corporations, and universities are making it easier every day. Recent years have seen a steep increase in the number of university-sponsored industrial or corporate liaison programs, all aimed at increasing university funding from private sources. Yet corporations and universities face a dilemma: How do they reconcile the short-term, profit-driven and transactional nature of the business world with the long-term, relationship-driven and research culture of the university?
A quick look at university Web sites illustrates the kind of split personality many universities are feeling they must adopt in their efforts to attract funding from corporations. They pair reports of the number of new patents received by the university or statements on how they will “match” you with potential interns, faculty or executive education opportunities with information on how you can “make gifts” to the university. Listing all of the services that the university provides and then asking for gifts confuses the relationship. Corporations are not used to “making gifts” to their suppliers. But there are tremendous opportunities for both corporations and institutions as long as each understands the needs of the other. The single most important factor that determines whether a company will develop and sustain a successful relationship with a major institution of higher learning is the company’s preconceived idea about how to work with the university. Experience at the MIT Industrial Liaison Program has shown that there are essentially two ways corporations approach a relationship with a university: as a vendor or as a source of consultative knowledge. These two approaches result in profoundly different outcomes for the corporation. This article highlights several successful relationships formed by the MIT Industrial Liaison Program and what separates them from less successful collaborations. It then provides three key factors in maximizing the relationship between corporations and research institutions.
The University As Home Depot
Federal funding for research and development dropped 18% from 1987 to 2000 when adjusted for inflation, and increased funding due to security concerns in the aftermath of the Sept. 11 attacks has only halted the decline without reversing it. The share of total research and development funding by the federal government shrank from 66.7% in 1964 to only 28.3% in 2002. And with the increased retirement of baby boomers putting greater pressures on government funds like Social Security, the trend toward less federal funding for research is expected to continue. To respond to the impending crisis in research funds, universities have turned increasingly toward the private sector for funding. Although corporations provided only 6.5% of university funding for R&D in 2002, they are the fastest growing source of funds, with an average increase of 7.7% per year when adjusted for inflation over the period of 1980 to 2000.1 Despite the growth, the increase is unlikely to make up for what many see as an inevitable drop in government-sponsored funds.
The growth of university corporate relations programs is a sign of an increased focus on formalizing the process that has existed between industry and academia. Recruiting, research, technology transfer, executive education and alumni relations have always been the reasons companies come to campus.2 But by crafting the message to universities, the liaison creates a special opportunity to both enhance and hinder that relationship. Here are excerpts from the mission statements of two prominent universities’ offices of corporate relations:
“Our goal is to help generate resources for the University by promoting mutually beneficial relationships between the University and the corporate community.”3
“Partnerships with corporations and private foundations play an important role in supporting and advancing the University’s mission of teaching, research and service, especially during these times of decreasing state revenues.”4
These statements make sense for the university. But what is in them for corporations? The above excerpts would appear to suggest that some at the university see corporate support of university research as a kind of “rising tide that lifts all boats.” The incentive to the corporation is unclear. With resources (i.e., money) at the center of the statements, it is no wonder that many corporations approach a university with the preconceived idea that the university is a vendor that the corporation can use to outsource projects, license technology or obtain low-cost consulting for a specific project, such as test materials. Corporations end up viewing the university much in the same way a home owner or do-it-yourselfer views The Home Depot Inc. — as a warehouse full of products and advice. Just like a customer at Home Depot, the corporation may be looking for a specific solution to fix a problem, seeking a few tips or just shopping to see what is new or available that it might need or want. And the corporate liaison program is perceived not unlike sales associates in a warehouse store who know the inventory, have some product knowledge and can point them to the right aisle.
On the face of it, this viewpoint doesn’t look that bad. The university has a lot of technology, equipment and capabilities, and the corporation has needs and problems the university might be able to address. But seeing a university as a vendor rarely produces significant outcomes for a corporation. There are three reasons for this.
First, seeing the university as a vendor invariably focuses the corporation on making a transaction with the university. Just like a customer shopping to buy something, the corporation focuses its energy on completing the purchase. Universities are not focused on making transactions, however. Rather, the focus of most university faculty and researchers is on a long-term approach to research and is devoted to academic freedom and publication.5 Dialogue is at the heart of this process. Companies often approach universities looking for ready-to-license innovations or easily converted products. They seldom begin the conversation by discussing their basic business and how it works. Even when they do engage in such conversations, corporate policies related to patents and intellectual property protection often are at odds with academic dialogue. Questions of who owns the patent arising from funded research, secrecy clauses that prevent publishing and the time-dependent nature of contracts discourage and hinder academics.6
Second, when a corporation does not fully appreciate the essential nature of dialogues within the university, the corporation ends up putting price ahead of content. Transactions come with an almost irresistible human desire not only to buy something, but also to get a bargain. The desire to get a bargain is so strong in some companies that they approach the industrial liaison by negotiating price before discussing the content of the project. Questions like, how much does it cost to do a project? and what are your IP policies? emerge before there is any thoughtful discussion of what the content of a project would be. This creates an adversarial or bargaining posture from the very beginning and creates suspicion and distrust. “In my experience, I saw operations people take a transactional approach to university relationships,” says Donald Remboski, vice president of product innovation at bearings manufacturer The Timken Co., based in Canton, Ohio, “and that is when wheels fell off the cart.”
The third reason viewing the university as a vendor does not produce significant outcomes for the corporation is that people in the company usually undervalue the resources that are available to them. Much like a do-it-yourselfer who asks the clerk if the store has caulk to fix a mortar joint without first talking to an expert to find out whether the foundation is sinking, corporate representatives usually see faculty members as narrow specialists — tools that can carry out tasks — instead of as experts who may be able to shed light on major issues. And when a corporation succeeds in beating down the price or making a single limited transaction, there is a tendency to stop respecting the university, since the company bought its services on the cheap. The outcome of the transaction is that the corporation only hires faculty members as consultants on narrow, low-risk tasks.
A Better Way
In recent years, the businesspeople visiting MIT to speak with faculty members have begun to change. While in the past mostly company engineers and scientists met with faculty members to keep abreast of new directions in research, now company executives and their lieutenants are scheduling and attending these meetings. These executives are bringing with them important and complex issues, and faculty members are especially interested because they are learning about major and complex problems that might serve as the basis for their future research. At times, important research projects or programs have resulted from these dialogues.
While working closely with these executives, it became apparent that they were using their dialogues with faculty members within problem-solving frameworks within their companies. These frameworks bear direct similarities with those used by management consulting firms. The similarities are found in the methods used to attack issues: formulating hypotheses, decision trees to break issues into subissues, and careful data and fact analysis.
But there are also two important differences. A consulting firm brings in consultants to conduct company interviews, form hypotheses, gather data, make analyses, reach conclusions and present solutions. Here, in contrast, company representatives, under the direction of a senior executive, fulfill the role of consultants. The senior executive is an internal engagement manager. Faculty members act as sources of outside information, often on important subissues. Where a consulting firm focuses on the internal organization and what it can do, company executives also focus externally on new competencies, new ways of thinking and new platforms that can be brought into the company to address complex issues. Universities are well suited to fulfilling this external need because of their large and broad-ranging research areas and capabilities, palette of diverse and unique thought leaders and specialized laboratories that no company could assemble independently.
What these executives have keyed in on is that while the university is different from business, senior management, consulting firms and the university share one significant element in common — the scientific method. Essentially, all do what a medical doctor does: examine the patient, form a diagnosis, develop a treatment strategy, implement the treatment, get lab test results and interpret the results to see if the patient has improved.
The commonality of the scientific method between what business executives do and the problem-solving models consultants use meshes well with the university because faculty members and researchers are experts at it: They instinctively understand and fit into the process. While faculty members do not diagnose problems or formulate or evaluate strategies for companies, they do provide significant insights and perspectives through their research that assist executives in asking the right questions, framing problems and taking new perspectives in order to make better hypotheses, analyses, determinations and decisions. Programs of research with the university that may emerge from these dialogues are not mere subcontracted tasks. Rather, they are strategic company initiatives aimed at improving returns. By involving the university in the strategy of the company and engaging in discussions of many aspects of the business, a more successful dialogue can take place. Rather than merely buying a solution off the shelf, the university now can supply multiple solutions, or even approach the problem in such a way that it becomes clear that the corporation wasn’t even looking for the right solution to begin with. This kind of rich dialogue increases the chances that both the academic institution and the business organization will be happy with the results. Below are three different examples of how a rich dialogue not only increased returns for the corporation but also created new long-term competencies for the organization.
A Lean Initiative
A company’s senior leadership had calculated that a lean enterprise initiative would have a major effect on the company’s costs and return on assets. The CEO was interested but challenged his executives to learn what they needed to move forward with a lean initiative. For him, it came down to two important subissues. First, were there any critical issues or unsprung traps that threatened to thwart implementation? Second, was there consensus among manufacturing executives to support embedding a lean enterprise mindset into the company’s culture? The internal company consultants, about 20 people ranging from black belts to vice presidents and led by the No. 3 executive in the company, together with the firm’s senior manufacturing vice presidents, came to the MIT Industrial Liaison Program. From interviews with senior executives, a brief was prepared for faculty members who had developed the MIT Lean Aerospace Initiative with the U.S. Air Force and the U.S. aerospace industry. The company’s representatives then convened with faculty members in an all-day session to gain an in-depth understanding of lean principles, as well as implementation issues that other companies had faced during the LAI research.
The executive who led the internal consulting group called this dialogue with faculty members an “eye opener.” The company’s representatives were able not only to learn how others had addressed implementation issues, but they were also able to build a consensus to back a decision to implement the initiative because of the unifying principles and perspectives they had acquired from unbiased world-class experts.
Based upon the inputs they gained from this dialogue, the company’s executives presented the CEO with a clear and factual case to move ahead with the initiative and won his support. The initiative was so successfully implemented in manufacturing that it has been extended to product development and other areas of the company. It continues to contribute handsomely to the ROA of the company with an estimated $300 million in cost savings in 2006 and even more expected in the future.
The discussion, of course, was two-way. Faculty members obtained an understanding of implementation issues from a company outside LAI’s original scope of research that has proven valuable to developing their current research agenda. It also has enabled faculty members to know personally and begin a dialogue with executives of a company that might, at some future point, become a partner to and sponsor of LAI research.
A New Platform for an Old Product
Many companies that supply the pigment, plastic and paper industries make nanoparticles. But for many companies, these materials have become near commodities. A midsized materials company decided that to grow profitably, it needed to find a way to sell its nanoparticles at higher profit margins to new customers.
An internal team made up of the company’s scientists and engineers who had demonstrated the ability to engineer new materials, headed by the vice president of research, began to explore what alternatives existed in the current research agendas of faculty members to create a new platform for their nanomaterials. Faculty members were interested in the fact that the nanoparticles manufactured by this company were ingestible by humans. In fact, the company had developed a small side business selling materials to pharmaceutical companies for over-the-counter supplements. This same material also was used as reinforcement in plastics. One faculty member had focused his research on a leading edge enhancement of nanoparticles, but only had demonstrated this enhancement on an experimental basis with noningestible metal particles. He was anxious to extend his research to applications of enhanced nanoparticles for a variety of medical applications like drug delivery.
Based upon the team’s dialogues with him, they decided to undertake a proof-of-concept research program to determine if a new nanotechnology process could enhance their materials. The success of these experiments caused the company to sponsor a research program as a strategic company initiative to develop core science for manufacturing. The outcome has been a fundamental patent in nanotechnology that will allow the company to sell its enhanced materials at higher profit margins not only to current industrial customers but also to significantly higher-profit-margin medical applications.
The vice president of technology of a competent manufacturing company with expertise in low-cost mass production and an internal team from his R&D organization conducted a technology road map exercise with each of its business divisions to define where each business planned to be over the next 10 years. During this exercise, it became obvious to the team that the company’s expertise was anchored in mass production — and that the market’s demands were moving rapidly toward mass customization. They determined that they needed to investigate and develop technologies that would enable the company to respond more quickly to market needs and opportunities through rapid changeover of its production lines, and also to leverage a smaller investment base to produce a wider range of products. This investigation, and the development that was envisioned to come from it, was directed at producing both a higher profit margin (earnings/sales) and higher asset turnover (sales/assets) that would, in turn, increase the firm’s ROA.
Interviews with the company’s vice president of technology development and vice president of engineering turned up their main issue: What strategic vision needed to be generated to meet the operational flexibility required by their business division’s plans? To meet this vision, several subissues needed to be addressed: How had very successful companies apparently generated far-sighted technology plans or visions? What new concepts in agile manufacturing, and what new science, might be brought to bear to develop a successful initiative? What had been the experience of other companies that had undertaken similar initiatives? What had they learned, and what unsprung traps had they discovered, that might thwart the implementation of a successful initiative?
These executives met with several faculty members. One, who had carefully researched the technology visioning approaches of several Japanese companies that had been remarkably accurate in their predictions, was able to confirm that those visions had combined a road map exercise with learning from previous experience, and that they were similar in principle to what these executives and their team had done. For these executives, the research served to validate their earlier exercise, on which they hoped to build their vision. Other faculty members were able to contribute concepts of reconfigurable tooling and tooling made from powder metallurgy that these executives and their team incorporated into their initiative as key elements.
The liaison office also introduced them to an executive from a noncompeting manufacturing company with similar high-volume production levels that had considerable experience with agile manufacturing. The vice president of technology said: “We gained from our discussions with you a valuable contact. He agreed to join a Flexible Manufacturing workshop we held at our R&D center and his experience with agile manufacturing was very enlightening. I am still using a number of his quotes today. This exchange of experience was tremendously helpful, more so because his company had the same strategic needs as ours, but was starting from a very different base.”
He went on to say: “Our discussions with faculty members were valuable from a strategic perspective and helped identify a vision of what the company could potentially achieve — a higher level of operational flexibility than we had originally envisioned. Our Flexible Manufacturing initiative is progressing well and through our persistence our businesses have recognized the need for agile manufacturing.”
Lessons for Companies
These examples all have three major factors in common: (1) the relationships moved beyond short-term vendor relationships and became lasting partnerships that built new capabilities for the company; (2) senior management was highly involved; and (3) the companies involved the university in their strategy and not merely in a technical task or isolated problem in their business.
It is important to see that all of these success stories are long-term projects within the organization. This is not simply because major success takes time to implement, but because proper relationships take time to cultivate. The corporations resisted the vendor trap. Despite the fact that they had identifiable problems or questions like, can we sell our nanoparticles more profitably?, they resisted the urge to merely buy or license a new process that in the short term might have provided them with a new product but had no long-term applications. This is not to say that a company can’t come in with a goal in mind. Good dialogues start with good questions, and the key is to understand your problems and best determine who has the knowledge to engage them. Emel Bulat, director of emerging technologies for defense contractor Textron Systems Corp. of Wilmington, Massachusetts, states that when considering new partnerships, she “look(s) for where there are gaps in Textron Systems’ capabilities or products. And then where there are multiple gaps that can be connected by a new competency or process, the company looks to fill those gaps.” It is important to understand that innovation begins with knowledge or capabilities, and what you are buying from the university is not innovation or a product, but a source of knowledge and competence that allows innovation to happen.
One of the best ways to create an ongoing relationship or dialogue with a company is to establish ties to the school, both physically and intellectually. Some of the best relationships benefit from a physical presence. Swedish aerospace manufacturer Saab AB has taken a unique step by establishing “Saab House” near MIT. This serves as a physical base for all Saab engineers and managers who come to visit MIT. But even when physical presence is impractical, emotional and intellectual ties are still possible by recruiting talent from the university. In a survey conducted by Cornell University’s Office of Corporate Relations, the No. 1 reason that companies come to campuses is to recruit talent, not to engage in research or technology transfer.7 The problem, of course, is that most corporations stop there. They establish the same vendor relationship that hurts them when approaching research. The best companies use the connections they establish by recruiting at the university to continue ties with the school once the recruited student has left. But of over 50 industrial liaison programs surveyed, fewer than half said that maintaining alumni relations was a priority for the corporations. Most companies did not see the value of maintaining those relationships.
But it is precisely in activities like keeping up relationships with academic institutions that the second important factor — having senior management involved — can be more easily achieved. Senior management must be engaged in the process, and one of the best ways to promote engagement is through strong ties to the institution. This can result from something as simple as having a key member of the team who was trained there or just a general perception that the school puts out “good people.” Even when this is not possible, senior management buy-in is a must. Take the earlier example of the company seeking lean manufacturing. A senior leader on that team said: “To successfully take on a major, new initiative such as six sigma or lean requires total alignment within the organization. There must be buy-in from top to bottom and that can only happen if there is true buy-in from the top. Our president/COO at the time had come from a company where six sigma was part of the culture. He drove the implementation of six sigma into our continuous improvement culture. When we began discussing adding lean to our CI efforts, he believed that it would be a good fit but also knew it would not be easy without complete organizational alignment and buy-in. That is why he supported the learning exercise with MIT.” The buy-in from senior management not only allowed the suggested implementation to happen, but it also allowed the fruitful dialogue to begin with. If not for the company’s forthright and open approach to the conversation, there would have been little the university could have done.
It is also this kind of commitment that permits the last of the three key factors. By engaging senior management, the discussion can broaden to include all aspects of a company’s strategy and not merely the original problem it chose to address. Take the agile manufacturing example. By allowing the dialogue to center on strategy rather than products or production techniques, the university was able to show the company that it could do better than even they had imagined. Another example is Timken, which in the 1970s and 1980s was looking to move from hydraulic and mechanical manufacturing to electronic controls. However, at the time, none of its major suppliers could provide what was needed. The company approached universities to work out the problem. The final product, which was part of an extensive project, was a part of a larger plan to make better and stronger materials at a faster rate. This was key to the overall growth of the company; the initiative led to the building of a new plant and several new key products.
At the heart of each of these successes is the road map to creating more mutually beneficial relationships between corporations and universities. As corporations look for more sources of innovation and universities grapple with funding cuts, they inevitably will find increasing points of contact. It is vital to a company’s growth that it discover how to manage relationships with the often foreign environment of the university. But this can be done as the Saab in-house magazine,Technology Transfer, describes it: “Industry and university are typically two quite different value streams. This has to be respected when setting up a formalized collaboration. The focus should be to find areas of collaboration with mutual benefits for both parties, for instance improved business possibilities and improved research and education opportunities.” The two different institutions have places of mutual contact, including the way they perceive and solve problems. And with senior management buying into moving beyond transactional relationships in ongoing dialogues, the benefits can only increase.