VI. The Economic Role

A. Main Findings

The Task Force learned of significant examples of laboratory-developed technology being usefully transferred into industry and of the laboratories providing useful technical services to industry. However, the laboratories are not now, nor will they become, cornucopias of relevant technology for a broad range of industries. A significant fraction of the laboratories' industrial competitiveness activities concern technologies which are of less than primary importance to their industrial collaborators and/or which these partners could obtain from other sources. There are only a relatively few instances in which the laboratories have technology that is vital to industry and that is uniquely available at the laboratories. Many firms also find it attractive to collaborate with the laboratories because of the availability of Federal cost-sharing funds. In practice the government subsidy is often very substantial relative to the new resource commitments that the firms are making to these projects.

Taken as a whole, the industrial competitiveness activities at the national laboratories are unfocused and lack a firm policy foundation. There is uncertainty within the laboratories about how large and broad-ranging these activities ought to be, about how to fund them, and about how they should relate to the other main areas of activity that the laboratories are engaged in - in particular, whether industrial competitiveness should be viewed as a primary or a derivative function. The uncertainty within the laboratories partly reflects an inconstancy in DOE policy and Congressional intent regarding these issues. One of the options that the Department has considered, elevating industrial competitiveness to a primary objective or mission, risks distorting existing programs and diverting resources towards activities that are unrelated to either DOE's competencies or its other missions. Such activities are unlikely to produce results that will benefit either the agency's industrial partners or the public in the long run. Recent indications are that DOE headquarters staff have recognized the need for greater focus in this area and are moving to develop criteria toward that end. We welcome these developments and encourage early discussions of the evolving situation with laboratory leadership.

Another issue requiring clarification concerns the appropriate division of labor among the national laboratories, industrial research laboratories, and the research universities regarding industrial R&D. The notion that the national laboratories should serve as a `bridge' between the research universities and industry in this arena - a notion presented to the Task Force - is not in general a useful way to think about this division of labor. It does not reflect what is currently happening, it is not consistent with the fact of the research universities' superior record relative to the laboratories as agents of technology transfer, it is difficult to reconcile with any plausible view of the future evolution of these institutions, and it appears to be based on an outdated picture of industrial innovation as a linear process that originates in basic research laboratories.

A more useful picture is of the laboratories serving as nodes in a national network of research and development institutions, with knowledge flowing in both directions along the links between the laboratory, university, and firm nodes. This network is simultaneously pursuing fundamental knowledge for its own sake, innovation for the purposes of private wealth creation, and public missions (national defense, public health, environmental quality, etc.), while at the same time educating and training the next generation of scientists and engineers. Because it is a true network, each type of R&D institution is involved in some way in all of the network's activities, but there is specialization among them. While the national laboratories are one of the primary nodes for public missions like national security, their role in wealth-creating innovation is necessarily secondary (and probably even tertiary in sectors far removed from the DOE's mission areas). The question is whether, how, and to what extent they can add value to the primary role of industry in this arena.

1. The Case For Industrially-Relevant R&D At The Laboratories

There are two principal reasons why industrially-relevant R&D is seen as an appropriate activity for the DOE laboratories. First, long-term research and development in industrial laboratories is declining, and industry is seeking substitutes for the functions that these laboratories once performed. Second, there is a perception that the U.S. government is spending significant resources on the development of new technologies but that American industry is not reaping the rewards of that investment. In the course of pursuing the DOE missions, the laboratories have developed an impressive array of core competencies, capabilities, and facilities, and to many it seems only logical that these resources be used to benefit the public in other ways.

2. A Critical Distinction

However, what seems to have been lacking at both the DOE and laboratory levels is a clear understanding of the distinction between the application of laboratory-developed technologies to industries where such application is an essential part of the primary mission areas of DOE (e.g., the development of energy saving technology for industry use, or the development of methods for analyzing and predicting the behavior of nuclear waste repositories, or the development of advanced techniques for oil field simulation) and, on the other hand, the application of these technologies to industries which have not had a relationship with DOE and whose activities lie well outside the mission domains of the agency and its laboratories. Without a clear understanding of this important distinction, the risk is that DOE will allocate public funds and the technical and human resources embodied in the laboratories in unfruitful ways.

To clarify and sharpen this distinction, we have found it useful to categorize the range of possible laboratory activities in industrially-relevant R&D according to their position in the simple matrix shown in Figure 2. In practice the boundaries between the classes of activity shown in Figure 2 are imprecise, but the basic distinctions are important nonetheless. The four categories are as follows:

Figure 2 Expected DOE National Laboratory Contributions to Industrial Research and Development

Near-term R&D applied to industries outside traditional DOE mission areas (i.e., national security, energy, environmental remediation). To be effective, near-term R&D work must take place in an environment rich in interactions with users and customers. Market-based influence, direction, and control are critical to success. In recognition of this, firms themselves have been evolving towards a more integrated process for developing new technologies, in which all participating Departments and disciplines are drawn into close and continuing interaction with the marketplace. The more distant the laboratories are from the marketplace, the more remote the likelihood that they will have something useful to contribute to such activities. Near-term development work at the laboratories is least likely to provide substantial contributions to industries outside of DOE's traditional domains of national security, energy, and certain aspects of the environment.
Longer-term R&D applied to industries outside traditional DOE mission areas. The potential contribution of longer-term laboratory research and development to commercial applications outside the DOE mission areas should similarly not be exaggerated. While there are instances of successful `by-product' R&D, the historical evidence demonstrates that such events are statistically improbable. Even for longer-term development activity, strong interactions with the marketplace are usually essential to success. To provide industry benefits, such long-term R&D would need to be tied closely to groups of industries that have never had close association with the laboratories, their people, or their culture, an unlikely prospect for creating useful results. Moreover, to be useful in a different industrial context, substantial technological modifications are almost always necessary, so if the laboratories are engaged in such activity resources will inevitably be diverted from their primary missions.
Longer-term R&D applied within traditional DOE mission domains. For firms and industries that are contributing to DOE's traditional mission objectives, the national laboratories have a useful role in carrying out long-term research and development with potential commercial applications. Indeed, it is even possible to imagine the laboratories playing a role with respect to these industries comparable to that which used to be played by central corporate research laboratories. Here the alignment between DOE and industry objectives is much closer by definition, and both DOE and its laboratories have more knowledge of their industrial partners' market environment. Longer-term research and development of this kind undertaken by the laboratories does not require day-to-day direction by industry, but close interactions are still important.
Near-term development applied to traditional DOE mission domains. Firms and industries that are participating with DOE in pursuit of its traditional missions of national security/energy/environmental pollution control and remediation may become aware of technical developments at the laboratories that will help them in solving a short-term product or process development problem. In such cases industry should be an active partner in directing the course of development, and should be encouraged to transfer interim laboratory outcomes into its own internal industrial R&D programs through the appropriate licensing mechanisms.

3. Expansion Outside DOE Mission Areas

We are concerned about the implications of expanding the laboratories' industrial R&D activities outside the existing DOE mission areas. If the DOE is to get into programs whose primary mission is to meet a need of private industry (as contrasted with programs where private industry needs are complementary to government needs, but not dominant), private industry will need to have a large say in allocation decisions and in evaluation, since only industry has the intimate knowledge of the marketplace that is critical to the success of such efforts. The difficulty comes in reconciling this need for industry direction with the parallel need for public influence over the disposition of public resources at government laboratories.

We are also concerned that the expansion of the laboratories' roles in serving the technology needs of private enterprise will create additional managerial problems within DOE. For any organization to be effective, the activities it manages need to be associated with a coherent set of objectives. Otherwise, it is virtually impossible to allocate resources rationally, or to evaluate the various activities and programs in terms of how they contribute to the performance of the organization as a whole. This is amply borne out by experience in private enterprise which indicates that most conglomerates do badly, especially in managing technological innovation. Under statute, the DOE is faced with the considerable challenge of managing an already diverse set of missions. Adding to this complex task the requirement to consider the technology needs of the private sector in areas not related to the Department's traditional domain of activity is likely to distract DOE from its public missions and lessen its impact while undermining the effective pursuit of those industrial objectives. We are concerned that `porkbarrel' criteria for program funding might increasingly replace more rational resource allocation, and that the laboratories might be more likely to propose industrial programs merely based on `make work' criteria.

We are further concerned about the possibility that DOE and its laboratories, in engaging in industrial R&D, may find themselves competing with private firms in providing technical services or new technological developments. In such a situation, the laboratories' access to public funds would give them an inappropriate advantage. Such situations are more likely to arise the less DOE and laboratory management know about the commercial application in question. We are already aware of some instances in which such competition appears to have occurred, and we are concerned that the problem may become more serious in the future.

All of these problems can be ameliorated if the industrially-related R&D done by the laboratories is focused on industries and applications which are themselves instrumental to achieving the DOE's public missions. That is not to suggest that laboratory directors should be denied the flexibility to initiate new technical projects at the periphery of current activities. Making room for individual and small group initiatives of this kind is an important way to keep the laboratories lively and exciting places to work. If such a project becomes large enough, though, a judgment must be made as to its fit with the rest of the laboratory's activities. This will depend not only on technical compatibility but also on the project's relevance to the laboratory's (and hence the DOE's) missions.

The current industrial partnership activities of the laboratories have brought them into contact with a number of industries that do not lie within the Department of Energy's traditional domain. In addition to the drawbacks specified above, these new involvements also suffer from a number of other problems:

They are unfocused. Without a connection to the Department's larger public missions, these initiatives are invariably add-on activities, managed on a case-by-case basis, through a well-intentioned but necessarily ad hoc relation to industry. The laboratories should not aspire to become research boutiques for industries.
Their short-term benefits are often oversold. Even when useful results flow from these partnerships, the benefits to the participating firms generally will not be evident for some time, and are inherently difficult to measure.
They distract the DOE and its laboratories from their public missions, diverting both intellectual and material resources.

4. Technology Partnership Mechanisms

Cooperative Research and Development Agreements (CRADAs) currently occupy pride of place among the array of mechanisms employed by DOE to encourage laboratory-industry cooperation in technology development and transfer. Introduced to the laboratories in 1989, the CRADA mechanism reflects the intent of Congress, developed and refined in legislation over the preceding decade, to ensure a greater degree of laboratory involvement in industrially relevant activities. Industry criticism of the CRADA mechanism has focused on the slow and uncertain nature of the negotiation process. The DOE and the laboratories have responded to these concerns. Nevertheless, there remain wide variations across the laboratory system in the speed with which CRADA negotiations are being concluded. Ironically, recent contractual reforms intended to encourage more businesslike relations between DOE and its management and operations (M&O) contractors at the laboratories risk complicating laboratory/industry negotiations because the contractors are more strongly motivated than before to secure rights and to take direct profits from laboratory-generated intellectual property. The Task Force believes that the contract-driven M&O motivation to profit from laboratory intellectual property will act as a significant barrier to industry acquisition and subsequent commercialization of laboratory technology in the future.

Other criticisms focus on the lack of independent review of the operation and outcomes of CRADAs[18], and also the process used to select industrial partners for these agreements. Regarding the latter, when a CRADA proposal is submitted there is typically no solicitation of competing proposals, nor an announcement that public resources are available for such work and will be awarded exclusively to the applicant company if others do not step forward. Nor is the peer review process as rigorous as other DOE programs; independent expert evaluations of the validity of the proposed work and its relevance to the DOE mission are not routinely solicited. These practices can be traced to earlier legislative and executive branch attempts to reorient the laboratories towards industrially relevant activities as rapidly as possible. However, their practical effect today is to leave the laboratories vulnerable to charges that the selection process is flawed and that the competitive playing field is being unfairly tilted towards the laboratories' chosen partners. In fact, DOE routinely and successfully implements several different models of independent peer review, at least two of which are relevant to the present situation -- the allocation of DOE beam line resources, and the allocation of funds under the Small Business Innovation Research (SBIR) program. The DOE should consider applying these practices to CRADAs as well.

5. Metrics

One of the most common metrics used by DOE and others to assess the technology transfer performance of the laboratories is the rate at which new CRADAs are being signed. An obvious limitation of this metric is that it measures inputs rather than outcomes, and the latter are likely to vary greatly from one CRADA to another. It also fails to distinguish among different classes of CRADAs. Some pertain to work that the laboratories would have undertaken anyway, even if no CRADA had been signed. Others entail a significant departure from a previous program of work. In some cases technology transfer activities have reportedly drawn the laboratories away from their primary missions. In others, resources appear to have been diverted away from fundamental research to support them. In such cases, a cost-benefit metric may be the only meaningful measure of performance. We also note that none of the laboratories appears to be measuring the effectiveness with which technology is being transferred in from industry or the universities to support their missions. In general, we recommend that greater emphasis be placed on outcomes in the measurement of technology transfer performance. The question of performance metrics for the laboratories in discussed further in Section VII of this report.

B. Recommendations

The government-funded technology transfer/industrial competitiveness activities of the national laboratories should be focused on industries and areas of technology that contribute directly to the DOE's primary missions in national security, energy and environment. Industrial competitiveness, broadly defined, has no place as a stand-alone mission of the laboratories, but rather should be regarded, and treated, as a derivative of their primary missions. The idea that the laboratories are, or could become, cornucopias of relevant technology for a broad range of industries is a myth.
Laboratory directors should have the flexibility to initiate or to approve new technical projects at the periphery of current laboratory activities. But if these initiatives are unrelated or only tangentially related to the public missions of the DOE, either different sponsors should be found or the work should be spun off into the private sector once the level of activity exceeds what can reasonably be funded out of the laboratory director's limited discretionary account.
Competitive selection and more rigorous technical and merit review by external experts should be applied broadly within the Department's CRADA activities. There are several alternative models available to DOE for this purpose, including programs currently administered by the DOE itself. One strategy would be for DOE to link some portion of its SBIR programs to CRADA activities. The two programs have similar legislated commercialization objectives, which should make them compatible. In addition, making this linkage would help to achieve a higher commercialization rate by maximizing the available resources (both cash and in-kind R&D). Improvements in the CRADA selection and monitoring process need not, and should not, incur any penalty in the timeliness of the process. The DOE should continue to focus on reducing the time required to complete CRADA negotiations and on bringing the laboratory system as a whole up to the standard of best practice established by the leading laboratories.

To Section VII, The Governance and Organization Issue
To Table of Contents