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Innovation and Commercialization of Emerging Technologies Innovation and Commercialization of Emerging Technologies September 1995 OTA-BP-ITC-165 GPO stock #052-003-01455-6 Recommended Citation: U.S. Congress, Office of Technology Assessment, Innovation and Commercialization of Emerging Technology, OTA-BP-ITC-165 (Washington, DC: U.S. Government Printing Office, September 1995). oreword echnological innovation is essential to the future well-being of the United States. The ability of the nation to sustain economic growth, increase its standard of living, and improve human health and the environment de- pends, in many ways, on its success in developing and commercializing new products, processes, and services. The growing capabilities of competitors in Europe, Asia, and elsewhere around the world increasingly challenge the ability of U.S. firms to convert the nation’s science and technology base into a competi- tive advantage. Such concerns have prompted much debate about the proper role of government in encouraging innovation and the commercialization of new technologies. To date, however, the debate has been hampered by an incomplete understanding of the ways in which firms develop and market new products, proc- esses, and services and the barriers they must overcome in the process. This background paper examines the complexities of innovation and commer- cialization in an attempt to demonstrate the linkages between science, technolo- gy, and innovation, and to highlight the growing importance of factors other than basic research in commercial success. As shown, innovation is a complicated process in which markets often stimulate development of new technologies and product or process development stimulates scientific and technical research. Many factors influence commercial success, including the nature and composi- tion of markets; competition from older technologies; choices of design and im- plementation; the availability of financing, standards, and complementary assets or infrastructure; and the ability to link with strategic partners. Government exerts significant influence on the innovation process, both intentionally and uninten- tionally. Research conducted for government missions can benefit commercial industry; federal procurement can jump-start nascent industries; environmental regulations can create markets for new technical approaches; government-spon- sored technology demonstrations can provide useful information about new prod- ucts, processes, and services to both users and developers; and laws in the areas of tax, investment, intellectual property, and antitrust shape the environment in which firms compete for resources and market share. This background paper was prepared in response to requests from the House Science Committee (formerly the Science, Space, and Technology Committee) and the Senate Commerce, Science, and Transportation Committee. Throughout the course of this study, OTA received valuable assistance from its advisory panel, contractors, and reviewers, who both provided information for the report and en- sured its accuracy and balance. The background paper is, however, solely the re- sponsibility of OTA. ROGER C. HERDMAN Director iii dvisory Panel Avtar S. Oberai Robert T. Fraley John T. Preston Chairman Group Vice President and General Director of Technology Consultant Manager Development New Products Division Massachusetts Institute of Paul Brickmeier Monsanto Co. Technology Vice President of Advanced Development Charles E. Harris Michael A. Rappa SVG Lithography Systems, Inc. Chairman and CEO Associate Professor Harris & Harris Group, Inc. Sloan School of Management Linda A. Capuano Massachusetts Institute of Vice President Maryellen R. Kelley Technology Conductus, Inc. Visiting Professor Industrial Performance Center Massachusetts Institute of Richard S. Rosenbloom Sidney C. Chao David Sarnoff Professor of Technology Hughes Environmental Systems, Business Administration Inc. Harvard Business School Ken Kennedy Director Robert Cook-Deegan Center for Research in Parallel Maxine L. Savitz Director, Division of Behavorial Computation Garrett Processing Division Sciences and Mental Disorders Rice University Allied-Signal Aerospace Institute of Medicine National Academy of Sciences William G. Morin Louis Tornatzky Director, Technology Policy Director, Southern Technology Mark Cunningham National Association of Council Oppenheimer and Co. Manufacturers Southern Growth Policies Board Mark Eaton Mark Myers Stephen Turner President Senior Vice President CEO/President JMC Ventures Xerox Corp. Oncor Inc. Walter H. Plosila Les Vadasz Executive Director Senior Vice President North Carolina Alliance for Intel Corp. Competitive Technologies Note: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members. The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents. iv roject Staff Peter D. Blair Jerry R. Sheehan ADMINISTRATIVE STAFF Assistant Director, OTA Analyst Liz Emanuel Industry, Commerce, and Office Administrator International Security Division Rodney Sobin Analyst Karry Fornshill Audrey B. Buyrn Secretary 1 Program Director Paul N. Doremus Industry, Technology, and Analyst Commerce Program Diane Jackson Administrative Secretary Paul D. Semenza Andrew W. Wyckoff Analyst Program Director2 Karolyn St. Clair Industry, Telecommunications, PC Specialist and Commerce Program David J. Eichberg Research Analyst CONTRACTORS Julie Fox Gorte Jean E. Smith Kevin D. Beaty Project Director3 Editor Consultant Robert C. Weissler Donn Forbes Project Director4 OTA REVIEWERS Consultant James W. Curlin Center for Global Change Gerald Epstein University of Maryland Greg Eyring Linda Garcia ________________ Tom Hausken 1 Until September 1994. 2 Mike Phillips Starting November 1994. 3 Until April 1995. Steve Plotkin 4 Deputy Project Director until April 1995. Judith Wagner v eviewers Chris Aldridge Brian Kahin Jeffrey Mohr Technology Competitiveness Staff Director, Information Chief Scientist U. S. Department of Commerce Infrastructure Project Information Technology Harvard University Solutions, Inc. F. Ronald Bailey Consulting Professor Joshua Lerner Carl G. Murphy Stanford University Assistant Professor of Business Chief Scientist Administration RCI, Ltd. Lester A. Davis Harvard University Senior International Economist Lawrence M. Rausch U.S. Department of Commerce Alan Miller National Science Foundation Director, Center for Global David Kahaner Change J. Richard Sherman Director, Asian Technology University of Maryland President Information Program RCI, Ltd. National Institute for Standards Stephen M. Millett and Technology Managing Principal Technology Management Group Battelle Memorial Institute vi ontents 1 Summary and Introduction 1 Principal Findings 3 National Interest in Innovation 4 The Changing Environment for Innovation 5 The Policy Debate 16 Understanding Innovation and Commercialization 20 Elements of Innovation Systems 26 2 Innovation and Commercialization 31 The Process of Innovation 31 Commercialization 49 3 Elements of Innovation Systems 61 Governance 62 Legitimation 63 Technology Standards 68 Scientific Research 71 Financing 74 Human Resources 80 Technology Development 82 Networks and Linkages 83 Markets 85 Conclusion 95 vii Summary and Introduction he United States has long been considered a definition of terms). Other industrialized nations a leader in technological innovation. have developed robust research and development Many of the most significant innovations (R&D) systems that rival those of the United of the past several decades, including inte- States in their ability to generate new scientific grated circuits, digital computers, nylon, bioengi- and technological discoveries and drive innova- neered medicines, and xerography, trace their tion. Many other nations with limited R&D capa- origins to U.S. companies and inventors. These bilities have become proficient at adopting achievements reflect the efficacy of the U.S. na- technologies developed elsewhere and incorpo- tional system of innovation, with its strong sci- rating them into new or improved products, proc- ence base, its entrepreneurial spirit, a financial esses, and services. As a result, U.S. firms cannot system that supports a large venture capital market rely on scientific leadership alone to maintain unparalleled elsewhere in the world, and sophisti- their competitive advantage in the marketplace. cated consumers who demand new products and Despite the large number of Nobel Prizes won by processes and whose tastes signal future changes U.S. scientists and the large number of patents in world demand.1 Together, these factors create awarded to American inventors, foreign firms the capabilities U.S. innovators need to success- have been able to outperform U.S. firms in some fully develop new products, processes, and ser- markets and have entirely overtaken some indus- vices. tries by aggressively developing and commercial- Over the last two decades, U.S. firms have izing new technologies, many of which were faced increasing competition in developing and invented in U.S. laboratories by U.S. scientists.2 commercializing new inventions (see box 1-1 for 1 For a discussion of the factors that determine a nation’s competitive advantage, see Michael E. Porter, The Competitive Advantage of Na- tions (New York, NY: The Free Press, 1990), pp. 69-175. 2 Several reports note growing competition in the commercialization of
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