1

INNOVATIONA 21st Century Imperative

Charles M. Vest

President Emeritus, MIT

NERCOMP

Worcester, MA

March 20, 2006

2

“Innovate or Abdicate”

-Sam Palmisano, CEO, IBM

3

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.

4

It doesn’t matter whether you’re a lion or a gazelle- when the sun comes up, you’d

better be running.

-Richard Hodgetts

5

6

Years for Innovative Products to Reach 25% of the U.S. Population

0 10 20 30 40 50 60

Automobile

Telephone

Radio

PersonalComputer

Cell Phone

World Wide Web

Why Everyone is in a Hurry.

7

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.

8

Something to Think About

Goldman Sachs analysts estimate that in about a decade 80% of the world’s middle-income consumers will live in nations outside the currently industrialized world.

9

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

10

Four Facts

Three Consequences

One Principle

And an Irony

11

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.

12

Three Consequences

• Individuals must innovate.

• Companies must innovate.

• Nations and regions must innovate

13

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

14

An Irony

In the 21st century Cooperation and

Competition reinforce each other.

15

America’s Comparative Advantage

• A Strong S&T Base

• Coupled to a Free Economy

• Built on a Base of Democracy

• In a Diverse Population.

16

America’s Innovation System from 1945-2005

A Brief history

17

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.

18

The Bush ReportScience the Endless FrontierPrimary 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.

19

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.

20

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.

21

The Vannevar Bush Modelis 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.

22

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.

Or, if you prefer a longer-term view:

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

23

University Innovations(Sole or Dominant Role)

• Computing

• Laser

• Internet

• GPS (fundamentals)

• Numerical Controlled Machines

• WWW (organization)

• Financial Engineering

• Genetic Revolution

• Modern Medicine

• Etc.

24

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

25

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

26

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.

27

The Japanese Total Quality Movement was the Major Innovation of the 1980s.

It changed everything.

Comment

28

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

29

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”

30

U. S. Innovation

In any event, Long-Term Basic Research is the Key to our Future.

But, … things are changing.

31

A New Century

• 20th Century: – Physics, Electronics, and High-Speed

Communications and Transportation

• 21st Century: – Biology and Information,– but also Energy, Water, and Sustainability

32

21st Century Change

Science & Engineering Research: Interdependent, Interdisciplinary,

Pasteur’s Quadrant

33

Interdependent

• Science now depends on technology.

• Technology now depends on science.

34

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.

35

No Yes

Yes

No

Pure BasicResearch

(Bohr)

Use-inspiredBasic Research

(Pasteur)

Pure AppliedResearch(Edison)

Research is inspired by:Consideration of use?

Quest forFundamentalUnderstanding?

Adapted from Pasteur’s Quadrant: Basic Science and Technological Innovation, Donald E. Stokes 1997

R&D is increasingly performed in “Pasteur’s Quadrant”

36

No Yes

Yes

No

Pure BasicResearch

(Bohr)

Use-inspiredBasic Research

(Pasteur)

Pure AppliedResearch(Edison)

Research is inspired by:Consideration of use?

Quest forFundamentalUnderstanding?

Adapted from Pasteur’s Quadrant: Basic Science and Technological Innovation, Donald E. Stokes 1997

R&D is increasingly performed in “Pasteur’s Quadrant”

FormerUniversityPresidents

(Vest)

37

Good News

This is the Most Exciting Era Ever for Science and Technology.

38

What We See Today.

• Exponential advances in:– Knowledge– Instrumentation– Communication– Computation

• These create huge possibilities.

• Students are crossing disciplinary boundaries in unprecedented ways.

39

Engineering Frontiers of this Exciting Era

MacroEnergy

EnvironmentManufacturing

CommunicationsLogistics

BioInfo

Nano

40

Engineering Frontiers

MacroEnergy

EnvironmentManufacturing

CommunicationsLogistics

BioInfo

Nano

Smaller and SmallerFaster and Faster

More and More Complex

41

Engineering Frontiers

MacroEnergy

EnvironmentManufacturing

CommunicationsLogistics

BioInfo

Nano

Larger and LargerMore and More Complex

Great Societal Importance

42

Frontiers and Synergies

MacroEnergy

EnvironmentManufacturing

CommunicationsLogistics

NanoBioInfo

Natural Science

Science and EngineeringAre Merging.

43

Frontiers and Synergies

MacroEnergy

EnvironmentManufacturing

CommunicationsLogistics

NanoBioInfo

Social Science

These engineering systems need social science, management, and

humanities / communications.

44

Frontiers and SynergiesMust be reflected in university education.

MacroEnergy

EnvironmentManufacturing

CommunicationsLogistics

NanoBioInfo

Social Science

Natural Science

45

21st Century Change

Where the expertise is and will be.

46

Where the Expertise is

Source: Competitiveness Index 2007, Council on Competitiveness, Washington, DC

Young Professional Workforce(college grads up to 7 yr.

0

500000

1000000

1500000

2000000

2500000

China India U.S.

Engineers

Life Science

Finance/Acct.

47

Where the Expertise will be

48

0

50

100

150

200

250

300

19831984198519861987198819891990199119921993199419951996199719981999200020012002

China

Japan

S. Korea

US

UK

Germany

Source: Science and Engineering Indicators 2006, National Science Foundation, Washington, DC

First Engineering Degrees(China Rises.)

China

US

Japan

49

21st Century Change:

The Rise of R&D and Innovation in the Service Sector

Especially in North America

50

0102030405060708090

100

1800 1850 1900 1950 2000 2050

Services (Info)Services (Other)Industry (Goods)Agriculture

Source: Stuart Feldman, IBM Research, Presentation at Carnegie-Mellon University, 29 June, 2005

What we produce is changing.(The Information Age)

U.S. % Employment by SectorHistory and Projection

51

Source: IBM Research http://www.research.ibm.com/ssme/

Labor Force by Sector 2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

U.S.JapanRussiaGermany

Brazil

IndonesiaChina

Bangladesh

IndiaNigeria

ServicesMfg. GoodsAgriculture

52

Industrial R&D 2000

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

US

Canada

UK EU

FinlandS. KoreaGermanyJapan

SERVICES

MFG.

Source: Science and Engineering Indicators 2004, National Science Foundation, Washington, DC

53

21st Century Change:

Innovation is Global.

Investments in R&D

54

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.

55

U.S. R&DOn 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% New U.S. Patents -2%

– Sci. Publications -8% Sci. Researchers -8%

– S&E BS Degrees -10% New S&E PhDs -30%

Source: Competitiveness Index, Council on Competitiveness Nov. 2006

56

Location and Innovation

A Debate

57

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..

58

Location Does Matter.

• The power of regional innovation clusters

• Proximity of small companies and corporate labs to universities

• Venture capital tends to converge.

59

Both are correct. But in any event, …

• Globalization is the new reality.

• Collaborative innovation - locally or globally - is the trend.

60

GLOBALIZATIONOur Reality and Opportunity

61

• Sony and ToshibaExcel at Computer Games• IBM excels at sophisticated chips.

Life today isn’t simple.

62

• Sony and ToshibaExcel at Computer Games• IBM excels at sophisticated chips.

IBM, Sony, and ToshibaDevelop “Cell”

ProcessorsIn Austin, TX

Life today isn’t simple.

63

• Sony and ToshibaExcel at Computer Games• IBM excels at sophisticated chips.

IBM, Sony, and ToshibaDevelop “Cell”

ProcessorsIn Austin, TX

Los Alamos ordersLargest SupercomputerBased on these chips

Life today isn’t simple.

64

So New Innovation Models Emerge:

65

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

66

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.

67

But people are concerned byManufacturing Migration

• From the U.S.– To Taiwan

• To Korea– To China

» To Viet Nam …

• An Inevitable Migration?

68

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

69

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

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 …

71

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

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.

73

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.

74

Securing the Future

Building a Base for U.S. Competitiveness and Innovation

75

In the Beginning was …

76

QuickTime™ and aTIFF (Uncompressed) decompressor

are needed to see this picture.

77

And there was light …

78

79

NII Agenda

• TALENT

• INVESTMENT

• INFRASTRUCTURE

80

81

Recommendations of the Augustine Committee

• Ten Thousand Teachers, Ten Million Minds

• Sowing the Seeds

• Best and Brightest

• Incentives for Innovation

82

And Then a Miracle Happened …

83

Council Academies President

84

***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

85

Securing the Future

Building a Base for U.S. Competitiveness and

Innovation

It may actually come to pass.

86

Thank you.