Saturday, March 3, 2007

Research in transition

When I look out of my window at HP Labs in the Stanford Industrial Park, I can see other research labs, like Google Labs, IBM Almaden, Intel Research, Microsoft Research Silicon Valley, SRI, Sun Labs, Yahoo! Research, and others. When I walk around the terrace, I see more, like FXPAL, PARC, Ricoh Innovations, and so on…

There are also the ghosts, like Canon Information Systems, DEC SRC, DEC WRL, the IBM Scientific Center just across the street, Olivetti, Philips Multimedia, Schlumberger Research, and many more. Not to mention that the existing labs are smaller than they used to be.

In the streets of Palo Alto I easily bump into old ex-researchers. They make do with all kinds of odd jobs, like marketing, scrambling software for missiles, due diligence for venture capitalists, draft patents, install home theatres, herd sheep, teach at local colleges, tinker in their garage on inventions that hopefully attract venture capital,…

Yes, wasted brain power. Why? Business people say the times have changed, that it is cheaper to do mergers and acquisitions, outsource research in emerging countries, or contract it out. Some say today anybody in the company can invent, or they use contests and blogs to get new ideas from customers.

I do not believe this is true. I think the problem is structural, and this explains why the researchers out of a job are all old, the same people that used to be revered with monikers like greybeards and greybacks. Let me first get out of the way the confusion between research and innovation. Here are the definitions from the Oxford Dictionary:

the systematic investigation into and study of materials, sources, etc., in order to establish facts and reach new conclusions
bring in new methods, ideas, etc.

Research is about creating new knowledge, doing new science. Innovation is about harvesting new research results elsewhere and adopting them. From a strategic point of view, research is hard and time consuming, therefore it generates high profits (it takes the competition a while to catch up) and differentiation. Innovation instead requires an open mind and a good nose, but the innovation has to be cheap because the competition can also get it.

Now that we know the difference between research and innovation, we can also appreciate that research is much more tricky, expensive, and risky. So why did companies set up labs in the first place? We can go back to history and read the section on our inception on page 134 of Mr. Kirby's interview with Mr. William Hewlett:

In '66 HP established what it called the Hewlett-Packard Laboratories, a central research organization. Can you tell us what led to the formation of HP Labs and how it was organized and staffed?
Well, I can tell you what led to its organization. Dave and I were concerned that our engineering staff was too concerned with the day-to-day products and they were not looking ahead far enough. We actually told them we'd like them to take one day off a week and try to be creative for the future — or maybe it was one day every two weeks. It didn't work. The guys had projects they had to get out on time schedules. They were important. They were tomorrow's bread and butter and they couldn't afford to take time to do other research. So we decided we really needed a forward-looking group and we set up HP Labs. We had a certain budget — and Barney Oliver was the first head. I don't remember how it was organized beyond that.
So they were doing research that was much farther out than the divisions were doing?
They did three types of operations. (1) Where a division did not have the technical skills to pursue its field. A good example was F&M. F&M had no electronic capability, so the Labs could look at chemical analytical products from a long-term standpoint and I think the mass spectrometer is a good example of that. It was a Lab development.
(2) The second area was to put us in new fields. The best example was the desktop calculator. That was developed in the Laboratory, as I remember, and we realized that we had trouble injecting things into a division because they already had their own priorities, so we decided where it was going to go — which was Loveland — and we got Loveland to come out here and work with the Lab people so they felt it was their project. Then it was a smooth transition. Another one that was not so successful was the surveying equipment.
(3) The third thing was just doing advanced research, anticipating what was going to be needed. So there were three categories: starting new businesses, undergirding divisions that were weak technically in electronics, and doing basic, forward-looking work.

This argumentation should still hold today, so why then is research disappearing and why are experienced people pushed out of the door first? As mentioned earlier, the problem is structural. The change — or as it is sometimes called corporate R&D transition — is not happening now but happened in 1988. The trigger was the fall of the Berlin Wall.

During the cold war, we researchers were bred to outbrain the Russians. As long as this was the mission, people like J.C.R. Licklider could dole out large sums of money to support large research efforts. Many projects in the research labs were funded because the Feds, as we called them affectionately, had put out a request for proposals and our mother companies wanted to bid. For example, when I implemented the first commercial color management system, my the first taker was the State Department and my first customer was Mr. Carlucci.

The critical thing to understand here is that selling to the Feds is very different than selling in the commercial market. The Feds first decide exactly what they want, then they take the best bid and pay cost plus, i.e., whatever the thing costs plus a profit margin. In the commercial market, instead, there is a price that the market can bear. The vendor has to assess this price and then allocate R&D funds that can meet this price.

The larger a company is, the larger the market for a new product has to be to make it worthwhile for a company to enter that market. Usually, a larger market means that the technology is already established and there are other players. Therefore the price is already tight and there is just margin left for innovation, not for R&D.

We now understand why the research labs shrank and why the process started in 1988. But why is it affecting mostly old researchers? The reason is that our brains get wired in part genetically and in part when we get educated, but they cannot get rewired. To be successful in the cold was era, a researcher's brain had to be wired differently than in today's open market economy. Today's researchers think differently. How so?

creative professions

In this illustration of creative professions, in the cold war era a successful researcher, i.e., one who could aspire to become a greybeard and later a greyback, was a speculative designer, because he had to be a master both in creating new science by going back to first principles, and be able to implement a new idea. Of course nobody is perfect, and one aspect of managing researchers is to pair up a speculative designer with a scientific penchant to a designer with an engineering penchant.

In the current era of free markets, instead, the successful researcher is the one with an entrepreneurial mind, who combines a different cognitive style, and this is why I stated that today a successful researcher has a differently wired brain. Since brains cannot be rewired, the problem is structural, i.e., old researchers cannot be recycled. I should add that in the figure, greed is intended in the positive sense of being moved by a very strong desire.

I am indebted to Kemal A. Delic for sparking this discussion.

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