Today’s University is a rich resource for companies seeking game-changing technological breakthroughs. In this in-depth article Melba Kurman looks at the benefits of open innovation partnerships between companies and American university researchers.

In the U.S., the innovation landscape has changed dramatically over the past 30 years, particularly the innovation partnerships between company product development teams and university research labs.

In the 1970s and 1980s, as they shifted their focus to shorter-term results, many Fortune 500 companies closed their in-house R&D labs. Today, with some notable exceptions such as Microsoft, IBM and Proctor & Gamble, most companies no longer maintain their own in-house, early-stage, exploratory scientific research organizations.

Another powerful force that changed the innovation landscape was the passage of federal legislation called the Bayh-Dole Act, which in 1980, gave U.S. universities the legal right to own patents on the results of on-campus federally funded research, as long as the university was willing to pay to patent the invention, and make a reasonable effort to find a business partner to develop the patent into a commercial product.

Finally, companies are increasingly more comfortable with the process of open innovation as a mode of product development. Many companies, both large and small, have become increasingly adept at feeding their product development pipelines by tapping into the expertise and resources available at other organizations.

Open innovation is defined by Henry Chesbrough as a product development process in which companies commercialize internal ideas by combining in-house knowledge and resources with those created outside the company. In Chesbrough’s terms, universities are innovation explorers, performing basic science and discovery research that they hand off to companies to develop into commercial products. Universities can be a vital source of product innovation since their primary focus is to discover new knowledge that sometimes results in cutting-edge technologies.

Companies look to universities for new product ideas, data and game-changing research and technology. In contrast to the lingering stereotype of the academic ivory tower, today’s U.S. universities are well-funded research hubs that create game-changing knowledge across a broad range of industries. Universities receive billions of dollars in research sponsorships and grants from the government and companies. According to data from the National Science Foundation, more than 60% of government funding for basic research flows to university labs. According to the Association of University Technology Managers, in 2009, companies paid for over $4 billion worth of research, about 10% of a typical university’s annual research budget.

By partnering with university research labs, companies gain the opportunity to experiment with new technologies and methods without committing to hiring permanently the expertise needed to develop these technologies. Universities have specialized facilities and staff skills that cannot readily be obtained elsewhere. Despite the depth and breadth of technological expertise and resources enjoyed by large research universities, university research, valuable as it may be, in most cases cannot be simply plugged directly into a company’s product development pipeline. The most productive partnerships between companies and universities take shape when the players find the right balance between remaining true to their own core goals and competencies and stretching to make cultural and work-style adjustments.

U.S. research universities as innovation merchants

It’s important for CEOs, senior executives, product managers and innovation managers to understand that U.S. research universities view their research labs and faculty expertise as marketable resources. Today’s universities continue to conduct their traditional functions of teaching and research, but in the terminology of open innovation, are becoming increasing active “innovation merchants.” Until a few decades ago, universities did not own the intellectual property and ideas they generated, nor did they themselves sell or license patents resulting from their research. Before the Bayh-Dole Act of 1980 was passed, universities typically did not view the fruits of university research labs as a potential revenue source. As a result, research universities of yore were more likely to share their freely expertise and inventions with other organizations. Before the 1980s, with a few exceptions, most universities did not own patent portfolios, nor did they monitor their research labs to identify potentially commercially valuable patents.

Today, most U.S. research universities own sizeable patent portfolios that they seek to commercialize by licensing to companies and startups in exchange for fees and royalty payments. Since universities conduct the majority of federally-funded research in cutting-edge fields such as biotech, clean energy, and nanotechnology, and they have the option to patent what comes out of their research labs, universities have ended up owning nearly one-quarter of new U.S. patents on the fields of nanotechnology and biotechnology1. Many countries have followed the U.S. model and now permit their universities to own and broker patents, and to conduct industry sponsored research in university labs. In this new innovation ecosystem, universities own their own patent portfolios and play the commercialization game as innovation explorers and innovation merchants. Companies that attempt to collaborate with university researchers frequently discover that in addition to traditional challenges such as cultural differences and varying priorities, companies must also consider the intellectual property issues that will likely come up in a university/industry research partnership.

Benefits of partnering with a university

Despite challenges, a number of different factors encourage companies to consider an innovation partnership with a university.

  • By partnering with university research labs, companies can explore new technologies and methods without investing in new employees or physical infrastructure.
  • University faculty represent a wide range of expertise in a number of different fields; most engineering faculty are actively engaged in addressing leading industry problems in their fields.
  • A company can tap into a number of different university research areas, enabling greater agility in company product research efforts.
  • If a company hires students for a project, the company builds a pool of potential future employees who are already familiar with the company’s technology and readily available for hire in the short term.
  • Since university researchers openly share their scientific work, the majority of their prior research projects are publicly available; a company seeking a subject specialist can more easily find and evaluate the offered expertise of the university researcher.
  • University research labs are unlikely to attempt to develop a directly competing product.

Companies can tap into university innovation via a number of formal and informal channels. Partnership options range from hiring student employees, seeking expert technical advice, to licensing university-owned patents.

Given the complexity of the university innovation ecosystem, there’s no “one-size-fits-all” guidebook to help an innovation manager successfully navigate the academic labyrinth. An innovation manager must carefully consider which channel works best for her goals.