5.5.1 Industrial Benefits of Membership

Industrial sponsors of ERCs generally feel very positive about the contributions of the center to their industries. Many companies see the centers as critical components of their industries' research and educational development.

5.5.1.1 NSF Study of ERC-Industry Interactions

In FY 1996, NSF's EEC Division completed a study of ERC-industry interactions.* Its purposes were to (a) examine patterns of interaction that have emerged between ERCs and industry, (b) determine which types of interaction were most useful to industry, and (c) assess the value and impacts of interaction to the companies. Nearly 90% of industry sponsors determined that their firms had received benefits from ERC participation, and about two?thirds indicated that the participation had had at least some effect on their firms' competitiveness. Of those reporting an impact on corporate competitiveness, four in ten rated the impact of ERC participation on their competitiveness as "moderate" to "a great deal."

The major benefits fell into five categories: (a) access to new ideas, know-how, or technologies; (b) technical assistance; (c) interactions with other firms participating in the ERC; (d) access to ERC equipment and facilities; and (e) access to ERC students and graduates as potential employees. Only 40% of representatives' firms had hired students or graduates; however, those doing so valued this result of ERC interaction more highly than any others. While a small proportion of firms received benefits associated directly with intellectual property, these benefits were valued more highly by the firms than any other type of benefit except those associated with hiring ERC students and graduates. (Section 5.4, "Intellectual Property and Commercialization," reviews some of the ways ERCs manage intellectual property.) Many firms benefited in ways that they had not anticipated when first joining. Breadth of opportunity for benefits was, therefore, an important factor in firms' experiencing benefits from involvement with ERCs.

Perhaps the most important result of the study is that companies receive benefits in direct relation to the number of years they participate in an ERC and the extent of active involvement with the center: the longer firms participated and the more direct personal interaction there was between corporate and center personnel, the more direct benefits the firms had received thus far and the greater the effect on company competitiveness. Firms expecting specific benefits in the near future often planned to become more involved with the center through such things as personnel exchanges and joint projects in order to realize the expected results. Involving more corporate personnel in center activities than just the firm's ERC representative was a key to firms benefiting from ERC participation.

5.5.1.2 Benefits as Identified by Industrial Liaison Officers

Industrial Liaison Officers describe the main benefits of center membership for industrial sponsors in much the same way as industrial members do in the study just described. The Industrial Liaison Officers list these benefits (in priority order) as:

• Early access to highly leveraged cutting-edge research results not achievable in individual companies
  
• Access to a steady supply of graduates skilled in the newest technological approaches and in interdisciplinary systems thinking and with strong industrial orientation (since 25-95% of center graduates go to sponsoring companies)
  
• Recruitment of top students into the field
  
• Interaction with other companies at a personal and technical level that would otherwise not be possible
  
• Maintenance of research project continuity over extended periods of time
  
• Use of ERC-developed specialized equipment for characterizing and evaluating research concepts designed to address industrial problems.

Other important benefits identified are preferential access to specialized facilities and equipment, access to faculty members, training for industrial researchers, influence on research directions in the center, and participation in workshops, seminars, and research review meetings.

CASE STUDY: UWEB corporate sponsors' views of the benefits of membership correlate highly with the list above, compiled from Industrial Liaison Officers. Most company participants are scientists, engineers, and technical managers. They are attracted mainly by the high caliber of the science and investigators at the ERC. Also high on their list is the interaction with and opportunity to hire the students in the program.

However, it is important to note that these are not the primary benefits that these personnel report to the upper management of their companies. The chief benefit by which they justify the annual costs of UWEB sponsorship is technology transfer and the chance for the company to secure IP for future product development. There are a handful of upper management individuals who regularly attend UWEB events, and their support is absolutely essential (particularly in the very large companies that have numerous divisions and employee rosters in the tens of thousands).

One way to raise the profile of the ERC among its corporate sponsors is to encourage the technical personnel in corporate divisions to move sponsorship fee onto their companies' corporate budget. This move has benefits for both the division and central levels of a company, and for the ERC itself. While technical personnel are learning through their participation, the corporate leaders are able to keep an eye out for advancing technology. Surprisingly, UWEB has even been able to play a role in enhancing the communication between divisions of some of its sponsors through the establishment of joint projects requiring the cooperation of personnel in both the divisions and headquarters.

5.5.1.3 Job Performance of ERC Graduates

A second NSF-sponsored study of ERCs, also completed in FY 1996 and reported in the 1997 NSF report noted earlier, examined: (a) the extent to which masters and doctoral graduates with substantial ERC experience are more effective on the job than their peers; (b) what the graduates did while at an ERC; and (c) the impact of ERC activities on the graduates' effectiveness on the job. While the emphasis was on those who were employed in industry, those working in academia and those in Federal or other sectors were included.

ERCs give students broader, non-technical capabilities that make them more effective as potential leaders in industry and elsewhere. Supervisors and corporate representatives value these capabilities, and graduates identify ERCs' impact as strongest in these areas as well.

The ERC culture of interdisciplinary teams, research relevant to industry, and direct involvement of industry produces these results in students, but each ERC still needs to improve its impact on students. Graduates judge their performance in these areas as just slightly better than that of their peers, yet see themselves as clearly superior in numerous technical areas. They recommend that ERCs expand significantly the exposure of students to industry, especially through internships. Long-term involvement in teams with industrial researchers is also necessary to broaden the students' experiences and capabilities in the areas that make them most effective in industry.

Ultimately, corporate partners and students will benefit most from greater involvement of corporate staff in ERC activities. More is better" is the main message of these studies. ERCs that approach their interactions with industry and graduate education from this perspective will go a long way toward ensuring that firms and students benefit from the ERC culture to the greatest extent possible.

This study of the effectiveness of ERC graduates is summarized in greater detail in an attachment to Chapter 4, "Education Programs."

5.5.1.4 Benefits of University Consortia

In some centers, another benefit to industry has been the opportunity to leverage the research and educational capabilities of more than one university. Some of them, such as the Center for Emerging Cardiovascular Technology (a graduated ERC) at Duke and four other universities, have formal academic consortia (described in the following case study). Others leverage their faculty effectiveness and enhance their credibility with industry by collaborating with colleagues at other institutions, either formally as co-PIs or informally. One center worked with its university's school of business, developing a joint proposal to help companies with both R&D and marketing the technologies of the ERC. Centers have collaborated with other universities on proposals for other (non-ERC) federally sponsored research and in order to form strong bases for significant contract research. Interaction of universities is vital in some centers' education programs, as illustrated in the case study that follows.

CASE STUDY: The recently graduated Center for Emerging Cardiovascular Technology (CECT) integrates the capabilities of three North Carolina universities, Case Western Reserve University, and the University of Alabama. Each brought to the center a unique expertise or resource that was important to the ERC's goals. The center found this university consortium structure to be both rewarding and a major obstacle. On the plus side, the multi-university nature of the center increased the ERC's appeal to industry, providing complementary expertise and resources, and thus significantly greater research capabilities than any of the universities in the center could offer themselves. Communication among the various faculties and student bodies was enhanced by quarterly retreats to review progress and strategic plans.

On the negative side, the center faced the conflict, for faculty members, between supporting the ERC and supporting their home universities. Since faculty members receive recognition for bringing research contracts into their home departments, their contributions are not always clear to their home university when contracts or grants are negotiated and awarded through the ERC, even though they may be contributing significantly to both the university and the ERC. All ERCs face this problem, but it is magnified in the multi-university context. The CECT has not found a solution to this problem that does not compromise the synergy and joint focus that a center provides. Another complex issue is intellectual property management. In joint projects, the issues of who owns what and how the royalties are divided take an immense effort to resolve, particularly in dealing with a mix of public and private universities. CECT made progress in this area by negotiating a memorandum of understanding among the institutions that provides a basic agreement on these issues.

Management of IP issues is a widely discussed topic across all the ERCs. (Section 5.4, "Intellectual Property and Commercialization," reviews the best practices in this area.) In the past few years, some of the key challenges, especially for multi-university ERCs and ERCs with subcontract participants, stem from efforts to clarify and establish clear procedures and policies. This issue is manageable, however. In the case of the Center for Power Electronics Systems (CPES), a cooperative agreement among the five affiliate universities was established, with a clear procedure for management of IP. The time required to establish the guidelines was said to be time well spent, and the lesson to be learned is that the ERC must go through these processes.

At UWEB, subcontracts clearly specify that IP derived from the ERC research at the participating institution must be licensed through the ERC to the UWEB sponsors. This provision is necessary to ensure that IP is protected for the sponsors. Otherwise, there is no legal barrier to licensing ERC-funded research to non-ERC participants.

Adopting such policies with multi-university ERCs may not always be easy; procedures must be derived from the policies of each university. It may not always be necessary, or even desirable, to blanket all of the ERC's IP in such fashion. The key issue is to determine what is best for the long-term success of the ERC. In most cases, intellectual property law dictates the disposal of joint IP, and agreements that clearly delineate control of licensing are rationally derived. The lesson to be learned is that it is worth the effort and it is necessary to derive these systems.

5.5.1.5 Benefits in the Form of Spin-off Companies

Many centers report entrepreneurial activity resulting from center research as a benefit to the industries they support. In some cases, an independent entrepreneur works with center technology licenses as the basis for the new venture. Legal issues are handled by the university's intellectual property officers and must conform to agreements in place with the center's member companies. These start-ups sometimes include current faculty participation, so a clear understanding of the university's policies on conflict of interest is critical. (See Section 5.3.3.2 for NSF policy in this area.) In many cases, former students and/or former faculty members participate in the start-up. The following case studies, as well as the example from the Montana ERC that was described in Section 5.3.1.4, illustrate the kinds of entrepreneurial activity being spawned by ERCs.

CASE STUDY: The Data Storage Systems Center (DSSC) at Carnegie Mellon University has been influential in the establishment of three start-up companies: Ansoft, Phase Metrics, and Advanced Materials Corporation. Ansoft Corporation was founded by a professor and a graduate student from the Center to develop and market computer-aided engineering (CAE) software for simulating magnetic fields. The company employs about 40 people and is the largest corporation in the world dedicated solely to providing CAE software for electromagnetics. Center researchers, in cooperation with Ansoft, have developed a number of advanced computer algorithms for magnetic field simulation as part of the center's continuing efforts to design improved magnetic recording heads. Ansoft has developed a variety of commercial products from these algorithms, based on research conducted at the center, for which the company pays royalties to Carnegie Mellon University. Its software is considered among the most advanced in the industry in terms of the solution procedure employed and the capabilities offered. This technical leadership results directly from the transfer of technology from the Center to Ansoft-a clear demonstration that ERC research can lead directly to useful commercial products.

In the second case, Phase Metrics, DSSC researchers developed unique instrumentation for measuring the performance of magnetic recording heads using a scanning, small-spot magneto-optic photometer. This invention was the basis for a new line of industrial development. Several sponsors of the center developed systems at their locations using the center's designs. One of the corporate representatives ultimately formed a new venture, Phase Metrics, which now manufactures such systems and sells them to manufacturers of magnetic recording heads.

A third spin-off from the DSSC, Advanced Materials Corporation (AMC), is developing magnetic materials for data storage devices. This start-up employs more than 15 people and is the premier U.S. company in high-energy permanent magnetics and related materials.

CASE STUDY: The Center for Neuromorphic Systems Engineering (CNSE) is a leading force in supporting entrepreneurial activities and courses at Cal Tech, not only on behalf of its own students but also across the university generally. As a result, CNSE students have founded a number of successful start-up companies. In 1996, two CNSE graduate students started Digital Persona, the company that developed the first consumer-oriented fingerprint recognition system. The idea for the product came out of a class taught by professors Pietro Perona and Demetri Psaltis of the ERC.

Shortly after the company was established, in 1997, Digital Persona won the Best of Comdex award and since then it has gathered a number of superlative reviews in the technical press, including PC Magazine Editor's Choice Award in 1999.

The company's product-a combination of hardware and software under the trade name "U are U"-- reads any of the user's fingerprints, at any angle, even upside down. The sensor is designed for ease of use and it requires no power supply. Tens of thousands of units have been sold to date and the product has been incorporated into IBM's desktop computers with the built-in Embedded Security Subsystem. The company has now a world-wide distribution system and approximately 50 employees at its headquarters in Silicon Valley.

realMOVES is another new company, formed by two CNSE graduate students in the Center's Vision Group. The students are the winners of Caltech's second annual $20K Business Plan Competition, initiated by entrepreneur Glen Hightower. realMOVES is developing video capture and software methods that will allow computer characters to move realistically, in real time. The company sees the video and computer games markets as their initial targets.

A third student start-up is Holoplex. This company's goal is to develop holographic memory products. The company designs and builds systems that require the recording of a large number of holograms in all commercially available recording materials (photorefractives and photopolymers). Application areas include image storage and recognition. The company also produces a gesture recognition system applied to a very successful video game product.

Clearly, these case studies demonstrate that ERCs can be very effective in creating start-ups and spin-offs, especially in high-risk areas that are considerably ahead of current industrial interests. Spin-offs often serve as a vehicle for pushing out technology that the more established companies may be reluctant to move forward on. However, not every industry is suitable for this approach. The best consortium model generally is for the ERC to maintain fundamental discoveries and technologies for the use of its members on a nonexclusive basis commercially.

5.5.2 Successes and Difficulties

ERCs are risk-taking organizations. Most assume that if they are not regularly failing at something, then they are not living close enough to the experimental edge. The trick is to learn from the failures and integrate the resulting knowledge into the next attempt. This "change agent" mentality is what both NSF and industry say they want from ERCs; but long-term success through strategic failure is hard to measure and justify. It is a uniqueness of the ERC Program that needs continued nurturing and protection.

Continued maintenance of the company membership base and recruiting of new members is more difficult than it was in the early days of the ERC Program. This is a result of economic stresses in industry and a much stronger desire by industry to ensure that clear, defined benefits result from the funds that are spent for external research. Resource limitation is a problem at universities as well, with faculty time being a prime example. In some centers, no industrial recruiting is done by faculty because they are overloaded. In the absence of strong university rewards for successful recruiting of center members, faculty members choose to spend their time in other pursuits. This disincentive still exists. Other issues perceived as barriers to getting and keeping companies active in centers are:

• Increasing costs of research at universities
  
• The problems of generic vs. proprietary research
  
• Publication requirements of universities
  
• The mismatch between short-term research questions and longer-term graduate education
  
• Dealing with the imbalance among sponsors' views of desirable long-term research directions
  
• Ineffective communication with upper-level management in sponsoring companies
  
• Overuse of the academic paradigm of published results (technical reports, papers) for the industrial audience, which is more attuned to technology application (whether or not the result was actually used to design or build something).

Effective interaction with industrial sponsors is most often limited by the failure of either industry or the center to provide the resources (time and appropriate personnel) for interaction. Partnerships grow best with continuity in the people involved and a commitment to regular communication-again, the health club analogy holds true: "The more you use it, the more you get out of it." It is important for upper management in sponsoring companies to understand that the greatest benefit from membership is the most costly in personnel time. Centers need to provide incentives to faculty members to continue developing partnerships with companies. Some centers report that the key is the reward of the intellectual challenges provided to the faculty member by the company partner; but for this to be effective, the matching of faculty interests and those of the company researcher must be quite close. One center is experimenting with using student time to compensate for the time constraints on both industrial personnel and faculty. A related barrier to effective interaction is travel restriction-the first response of a company to economic stress. Some centers are now using more of their own resources to visit sponsoring companies. The extensive use of email and the growing use of web-based interactions is designed in part to reduce the negative impact of these travel funding constraints.

It is worth noting that one center identified contract research as its chief success while another center identified contract research as its chief failure. It is a cliché, but also true, that any challenge represents an opportunity. And opportunities are just that, possibilities to be actualized in a unique setting. Each center works within its own industrial and university environment and must choose its path, not based on what works elsewhere, but on what may succeed for it.

In addition to these successes and difficulties in the relationship with companies, it is important to recognize that the universities are perhaps the greatest beneficiary of the NSF ERC Program. Today's academic environment is being swept by change in both the quantity and quality of industrial interactions. The ERC provides a challenging yet well-honed paradigm for achieving these goals. Most U.S. universities, despite great success in recent years, are still learning how to work efficiently with industry, and an ERC can lead the way. An ERC stands to benefit greatly as its host university and affiliated institutions continue to regard the ERC system as a trailblazing effort. Some of the chief benefits to the university are:

• If it can successfully conduct one consortium, it can grow to adopt new ones.
  
• The skills and coordination required to manage a consortium become fundamentally integrated with the disparate departments involved in university administration-especially in coordinating R&D contracts, IP management, and commercial licensing.
  
• An R& D consortium, built over many years, is an "instant marketing" system comprising a set of well-informed partners (as opposed to a series of one-at-a time and one-to-one handoffs). The consortium partners will tend to "pull on the rope," rather than pushing on it, as most universities do today.
  
• A well-managed group of targeted R&D consortia can be used to steer the university in new directions and to capitalize on underutilized assets, especially for faculty needing and seeking new research directions.
  
• For both new faculty and highly successful senior researchers, the consortium model developed along the lines of the ERC system, can lead to greater scientific and technological accomplishment overall. The scientific enterprise in such a highly coordinated, multidisciplinary system is an enormous drawing card to the best scientists. It is venturesome, but accurate, to compare ERC efforts to larger-scale endeavors such as the Manhattan Project or the NASA's Apollo Program. These goals could be met only through a large-scale, interdisciplinary approach, and the excitement of their scope attracted the very best scientific and engineering minds. The goals of revolutionary engineered systems have the same attractiveness-especially for the most successful investigators at any university. Great science and technology attracts the best minds in any setting, and the overall mission of the university is given a quantum leap in scope with these consortium efforts.

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