INNOVATION
A 21st Century Imperative
Charles M. Vest
President Emeritus, MIT
NERCOMP
Worcester, MA
March 20, 2006
1
“Innovate or Abdicate”
-Sam Palmisano, CEO, IBM
2
Every morning in Africa a gazelle wakes up.
It knows it must outrun the fastest lion or it
will be killed.
Every morning in Africa a lion wakes up.
It knows it must outrun the slowest gazelle
or it will starve.
3
It doesn’t matter whether you’re a lion or a
gazelle- when the sun comes up, you’d
better be running.
-Richard Hodgetts
4
5
Why Everyone is in a Hurry.
Years for Innovative Products to Reach 25%
of the U.S. Population
W orld W ide W eb
Cell Phone
Personal
Computer
Radio
Telephone
Automobile
0
10
20
30
40
50
60
6
21st Century Competition
Requires Fast Innovation
• In today’s competitive environment,
many companies set goals for 20-40%
of their business to come from products
developed within the last 2-4 years.
• The specific goal and speed depends
on the product sector.
7
Something to Think About
Goldman Sachs analysts estimate that in
about a decade 80% of the world’s middleincome consumers will live in nations outside
the currently industrialized world.
8
Just 15 Years Ago
• No World Wide Web
• No pervasive cell phones or wireless devices
• No sequenced human genome
• No carbon nanotubes
• No dot-com phenomenon
9
Four Facts
Three Consequences
One Principle
And an Irony
10
Four Facts
• People everywhere are smart and
capable.
• Science and Technology advance
relentlessly.
• Globalization is a dominating reality.
• The Internet and World Wide Web are
democratizing forces.
11
Three Consequences
• Individuals must innovate.
• Companies must innovate.
• Nations and regions must innovate
12
One Principle
Competition drives Excellence and
innovation.
• Competition among universities
– For the best students, faculty, research, and
scholarship
– Merit-based awarding of research grants
• Competition among companies
– To create new markets
– To get to market first
– To gain market share
13
An Irony
In the 21st century Cooperation and
Competition reinforce each other.
14
America’s Comparative
Advantage
• A Strong S&T Base
• Coupled to a Free Economy
• Built on a Base of Democracy
• In a Diverse Population.
15
America’s Innovation System from
1945-2005
A Brief history
16
U.S. Science Policy since
1945
• It began with a letter from President
Roosevelt to Vannevar Bush.
• Roosevelt asked how the U.S. science
community could work in peacetime to
secure the nation’s economic vitality,
health, and security.
17
The Bush Report
Science the Endless Frontier
Primary Recommendations
• Universities should be the primary national Basic
Research Infrastructure.
• Federal dollars do double duty:
– Procure research results
– Educate the next generation
• Award research grants based on competitive merit.
• Establish a National Science Foundation.
18
The Bush Report’s Economic
Development Assumptions
• Linear
Basic Research -- Applied Research --
Product Development -- Market Products and Services
• Laisser-faire:
Do basic research in universities and leave its
commercialization to chance and market forces.
19
What Emerged:
The U.S. Innovation System
• Government, Academia, and Industry working
together to
1. Create new knowledge and technology through
RESEARCH;
2. EDUCATE young men and women to create and understand
the new knowledge and technology; and
3. Move it to the MARKETPLACE as new products, processes
and services.
20
The Vannevar Bush Model
is an Enormous Success
• Economists broadly agree that more
than 50% of U.S. economic growth
during the last 60 years was due to
technological innovation.
• Much of the technological innovation
came from our research universities.
21
Or, if you prefer a longer-term
view:
QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
Everything we know about history, technology, and economic theory
tells us that an increase of this magnitude would not have been
possible in the absence of technological change. --Paul Romer 22
University Innovations
(Sole or Dominant Role)
• Computing
• WWW (organization)
• Laser
• Financial Engineering
• Internet
• Genetic Revolution
• GPS (fundamentals)
• Modern Medicine
• Numerical Controlled
Machines
• Etc.
23
From 1945 - 1985
• American research universities, public and
private, grew to excel.
• American companies dominated
• Large corporations dominated- especially
mass production.
• Corporations developed massive central
research laboratories
– Attracted outstanding university graduates
– Conducted outstanding pure and applied research
– Contributed to the commons of S&T knowledge
24
Tectonic Shifts
in the 1980s and 1990s
• Japanese companies suddenly dominated
manufacturing and U.S. manufacturing
companies could not compete.
– Quality
– Throughput
– Product cycle times
• American entrepreneurship expanded
explosively, driven by:
– Information technology from microprocessors
– The Internet
– Biotechnology
25
U.S. Corporations Responded
• Painful, basic transformations
–
–
–
–
Downsizing
Process Management
Quality Control
R&D merged with product development
• Many American companies emerged strong
and globally competitive.
• But the U.S. innovation system had changed.
26
Comment
The Japanese Total Quality
Movement was the Major
Innovation of the 1980s.
It changed everything.
27
Evolution of U.S. Corporate
Innovation and R&D
• 1970s: Central Corporate Research Labs
• 1980s: R&D Absorbed and Transformed into
Product Development
• 1990s: Purchase High-Tech Startups to
acquire Innovation
28
Evolution of U.S. University
Research
Basic Scientific Research remains the core, but:
• 1970s:The Engineering Science Revolution
• 1980s: Design, Manufacturing, Computer
Science, Joint Management/Engineering
• 1990s: Life Science, Interdisciplinary, More work
in “Pasteur’s Quadrant”
29
U. S. Innovation
In any event, Long-Term Basic
Research is the Key to our Future.
But, … things are changing.
30
A New Century
• 20th Century:
– Physics, Electronics, and High-Speed
Communications and Transportation
• 21st Century:
– Biology and Information,
– but also Energy, Water, and Sustainability
31
21st Century Change
Science & Engineering Research:
Interdependent,
Interdisciplinary,
Pasteur’s Quadrant
32
Interdependent
• Science now depends on technology.
• Technology now depends on science.
33
Interdisciplinary
• The Genetic Revolution in medicine and agriculture is
an integration or fusion of Biology, Combinatorial
Mathematics, Robotics and Automation,
Microfabrication, and Clinically-Based Medical
Insight.
• “Nanotechnolgy” is a rapidly evolving integration or
fusion of technologies and science that involves
almost every discipline.
• Synthetic Biology is an amazing melding of Life and
Information sciences.
34
R&D is increasingly performed in “Pasteur’s Quadrant”
Research is inspired by:
Consideration of use?
No
Yes
Quest for
Yes
Fundamental
Understanding?
No
Pure Basic
Research
(Bohr)
Use-inspired
Basic Research
(Pasteur)
Pure Applied
Research
(Edison)
Adapted from Pasteur’s Quadrant: Basic Science and Technological Innovation, Donald E. Stokes 1997
35
R&D is increasingly performed in “Pasteur’s Quadrant”
Research is inspired by:
Consideration of use?
No
Yes
Quest for
Yes
Fundamental
Understanding?
No
Pure Basic
Research
(Bohr)
Use-inspired
Basic Research
(Pasteur)
Former
University
Presidents
(Vest)
Pure Applied
Research
(Edison)
Adapted from Pasteur’s Quadrant: Basic Science and Technological Innovation, Donald E. Stokes 1997
36
Good News
This is the Most Exciting Era
Ever for Science and Technology.
37
What We See Today.
• Exponential advances in:
–
–
–
–
Knowledge
Instrumentation
Communication
Computation
• These create huge possibilities.
• Students are crossing disciplinary boundaries in
unprecedented ways.
38
Engineering Frontiers of this
Exciting Era
Bio
Info
Nano
Macro
Energy
Environment
Manufacturing
Communications
Logistics
39
Engineering Frontiers
Bio
Info
Nano
Smaller and Smaller
Faster and Faster
More and More Complex
Macro
Energy
Environment
Manufacturing
Communications
Logistics
40
Engineering Frontiers
Bio
Info
Nano
Macro
Energy
Environment
Manufacturing
Communications
Logistics
Larger and Larger
More and More Complex
Great Societal Importance41
Frontiers and Synergies
Natural Science
Nano
Bio
Info
Science and Engineering
Are Merging.
Macro
Energy
Environment
Manufacturing
Communications
Logistics
42
Frontiers and Synergies
These engineering systems need
social science, management, and
humanities / communications.
Nano
Bio
Info
Macro
Energy
Environment
Manufacturing
Communications
Logistics
Social Science
43
Frontiers and Synergies
Must be reflected in university education.
Macro
Energy
Environment
Manufacturing
Communications
Logistics
Social Science
Natural Science
Nano
Bio
Info
44
21st Century Change
Where the expertise is and
will be.
45
Where the Expertise is
Young Professional Workforce
(college grads up to 7 yr.
2500000
2000000
1500000
Engineers
Life Science
Finance/Acct.
1000000
500000
0
China
India
U.S.
Source: Competitiveness Index 2007, Council on Competitiveness, Washington, DC
46
Where the Expertise will be
47
First Engineering Degrees
(China Rises.)
300
250
China
200
150
Japan
100
China
Japan
S. Korea
US
UK
Germany
US
50
02
20
01
20
00
20
99
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
19
85
19
84
19
19
19
83
0
Source: Science and Engineering Indicators 2006, National Science Foundation, Washington, DC
48
21st Century Change:
The Rise of R&D and Innovation
in the Service Sector
Especially in North America
49
What we produce is changing.
(The Information Age)
100
90
80
70
60
50
40
30
20
10
0
1800
U.S. % Employment by Sector
History and Projection
Services (Info)
Services (Other)
Industry (Goods)
Agriculture
1850
1900
1950
2000
2050
Source: Stuart Feldman, IBM Research, Presentation at Carnegie-Mellon University, 29 June, 2005
50
Labor Force by Sector 2004
100%
90%
80%
70%
60%
Services
Mfg. Goods
Agriculture
50%
40%
30%
20%
10%
U
.S
Ja .
pa
n
Ru
G ssi
a
er
m
an
y
Br
a
In
do zil
ne
si
a
C
Ba
h
ng ina
la
de
sh
In
di
a
N
ig
er
ia
0%
Source: IBM Research
http://www.research.ibm.com/ssme/
51
Industrial R&D 2000
120.0%
100.0%
80.0%
SERVICES
60.0%
MFG.
40.0%
20.0%
an
Ja
p
G
er
m
an
y
re
a
S.
Ko
nd
nl
a
Fi
EU
U
K
na
da
Ca
U
S
0.0%
Source: Science and Engineering Indicators 2004, National Science Foundation, Washington, DC
52
21st Century Change:
Innovation is Global.
Investments in R&D
53
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TIFF (Uncompressed) decompressor
are needed to see this picture.
54
U.S. R&D
On Top / Losing Share
• The U.S. leads in R&D investments
• The U.S. is among the leaders of the pack in R&D/GDP.
• However, our global share declined in every category from 1986 to
2003.
– Domestic R&D -9%
– Sci. Publications -8%
– S&E BS Degrees -10%
New U.S. Patents -2%
Sci. Researchers -8%
New S&E PhDs -30%
Source: Competitiveness Index, Council on Competitiveness Nov. 2006
55
A Debate
Location and Innovation
56
Location Does Not Matter.
• “The World is Flat” -- Tom Friedman
– In 1989 the Berlin Wall came down, and Microsoft’s
Windows went up.
– $1.5 trillion worth of optical fiber connects the world.
– Globalization has “accidentally made Beijing,
Bangalore, and Bethesda next door neighbors.”
– Many jobs are now just a “mouse click” away from
anywhere..
57
Location Does Matter.
• The power of regional innovation
clusters
• Proximity of small companies and
corporate labs to universities
• Venture capital tends to converge.
58
Both are correct. But in any
event, …
• Globalization is the new reality.
• Collaborative innovation - locally or
globally - is the trend.
59
GLOBALIZATION
Our Reality and Opportunity
60
Life today isn’t simple.
• Sony and Toshiba
Excel at Computer
Games
• IBM excels at
sophisticated chips.
61
Life today isn’t simple.
• Sony and Toshiba
Excel at Computer
Games
• IBM excels at
sophisticated chips.
IBM, Sony, and Toshiba
Develop “Cell”
Processors
In Austin, TX
62
Life today isn’t simple.
• Sony and Toshiba
Excel at Computer
Games
• IBM excels at
sophisticated chips.
IBM, Sony, and Toshiba
Develop “Cell”
Processors
In Austin, TX
Los Alamos orders
Largest Supercomputer
Based on these chips
63
So New Innovation Models
Emerge:
64
For example:
Harry Chesbrough
(Harvard Business school)
• Open Innovation
– Companies today must integrate the best ideas,
no matter where they originate.
• In other countries
• In other companies or laboratories
• Even in competing organizations.
– New, dynamic business models are needed for an
open, connected world.
• Licensing
• Partnering
• Joint Venturing
65
Or
Sam Palmisano
(CEO, IBM)
• The Globally Integrated Enterprise
– Supercedes the multinational corporation
– Driven by globally shared technologies and
standards built on global IT
– Focus shifted from products to production
– New borderless strategy, management,
and operations for integrated production
and value delivery.
66
But people are concerned by
Manufacturing Migration
• From the U.S.
– To Taiwan
• To Korea
– To China
» To Viet Nam …
• An Inevitable Migration?
67
Inevitable or not, this is
serious business.
• Between 2000 and 2003, foreign firms built
60,000 manufacturing plants in China.
• In 2004 chemical companies closed 70 facilities in
the U.S. and have tagged 40 more for shutdown.
• 120 major chemical plants are under construction.
– One is in the U.S.
– 50 are in China.
Source: Palmisano, Foreign Affaiirs (May/June 2006); Rising Above the Gathering Storm
68
Or consider American
IT manufacturing jobs
• 400,000 jobs were lost from Jan. 2000 Dec. 2002.
• Overall U.S. manufacturing declined 6%
1997-2001, but computer manufacturing
declined 20 %.
Source: George Scalese, PCAST, 2003
69
Industry, R&D, and Innovation
are Migrating and Morphing.
Why?
• Economics and Wage Rates
• The Internet and World Wide Web
• Tax and Trade Policies
• But also …
70
Industry, R&D, and Innovation
are Migrating and Morphing.
Why?
• Economics and Wage Rates
• The Internet and World Wide Web
• Tax and Trade Policies
• But also … Speed and Complexity
71
To Summarize:
• The U.S. is the most innovative nation on the
planet.
• We have the best research universities.
• We are king of the hill in R&D.
• We have comparative advantages:
–
–
–
–
Strong S&T base
Free-market economy
Democracy and freedom
Diverse society.
72
To Summarize:
• The U.S. is the most innovative nation on the
planet.
• We have the best research universities.
• We are king of the hill in R&D.
• We have comparative advantages:
–
–
–
–
Strong S&T base
Free-market economy
Democracy and freedom
Diverse society.
• But, we cannot be complacent.
73
Securing the Future
Building a Base for U.S. Competitiveness and
Innovation
74
In the Beginning was …
75
QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
76
And there was light …
77
78
NII Agenda
• TALENT
• INVESTMENT
• INFRASTRUCTURE
79
80
Recommendations of the
Augustine Committee
• Ten Thousand Teachers, Ten Million Minds
• Sowing the Seeds
• Best and Brightest
• Incentives for Innovation
81
And Then a Miracle Happened …
82

Council

Academies
President
83
***MEDIA ADVISORY March 5, 2007***
SENATE LEADERS TO ANNOUNCE NEW COMPETITIVENESS LEGISLATION
Washington, DC—Monday at 2:00 p.m., Senate Majority Leader Harry Reid, Senate Republican Leader
Mitch McConnell, Senator Jeff Bingaman, Senator Ted Stevens, Senator Joe Lieberman, Senator Pete
Domenici, and Senator Lamar Alexander will join to announce the introduction of the America COMPETES
Act. This new bipartisan legislation will make our country more competitive in the global marketplace by
significantly increasing federal research investment and strengthening educational opportunities in science,
technology, engineering and math for students of all ages.
WHO: Senate Majority Leader Harry Reid
Senate Republican Leader Mitch McConnell
Senator Jeff Bingaman
Senator Ted Stevens
Senator Joe Lieberman
Senator Pete Domenici
Senator Lamar Alexander
WHAT: Press conference on the America COMPETES Act
WHEN: Monday, March 5, 2:00 p.m.
WHERE: Mansfield Room, S-207, U.S. Capitol
84
Securing the Future
Building a Base for U.S. Competitiveness and
Innovation
It may actually come to pass.
85
Thank you.
86