Lessons from the Corporate Labs: Technological Competition in a Changing Business Environment

The economic success of the United States in creating the digital world owes a great deal to two key factors. The first is the ability to innovate great technologies, and the second is the ability to turn these innovations into major industrial products.

This creative success was not the result of a lack of international competitors. Other countries in Europe and Asia have developed large engineering facilities and, combined, train far more engineers and scien­tists than the United States. What, then, accounts for this competitive success? In my view, a major factor is the cultural climate in the United States that encourages and rewards individual innovators free to pursue new ideas and concepts. This is combined with the availability of risk capital to develop such innovations into world-leading products. That combination creates great new industries based on innovations.

This discussion is particularly important as the United States now faces powerful competition from nations such as China, which have marshaled great academic, industrial, and technological resources aimed at building world technology leadership. We need to fully understand America’s innovative strengths and ensure that these are nurtured and properly supported. I believe from many years of industrial experience that committees of engineers don’t invent anything useful. Creative individuals with the talent and guts to pursue risky concepts are the “spark plugs” of technological innovations that change the world. But they must be matched with organizations under capable leadership that are able to marshal the required resources to succeed in big commercial markets.

My opinion is based on the fact that as we look back at the creation of the digital age, we see that many of the key inventions originated in the research laboratories of a few big corporations. These key innovations came from corporate facilities that enabled talented innovators to make extraordinary contributions because they were able to pursue original concepts full of risks—but also opportunities. I learned this firsthand. I had the good fortune to be part of one of one of these institutions, RCA Laboratories, where I led the development of many important innovations as a researcher and executive.

The invention of the transistor at Bell Laboratories in 1946–47 started the digital age. The invention of color television at RCA Labor­atories in the 1950s launched modern consumer electronics. Other great innovations came from big corporate laboratories—notably GE, Xerox, IBM, and Westinghouse.

The big multidisciplinary corporate laboratories that were responsible for these innovations no longer exist, for reasons I discussed previously in this journal, in a piece titled “Edison’s Legacy: Industrial Laboratories and Innovation.” But leading-edge product innovation is a continuing necessity in a dynamic economy and particularly important in the United States, and great sums are spent annually on research and development in dispersed and specialized research and development centers. The productivity of such corporate centers is a key factor in business success.

So how can we ensure their productivity? I believe that there is much to learn from the management of the former big laboratories. I spent more than twenty years at RCA rising in the ranks from a researcher to a managing vice president. My intention here is to highlight the organi­zation and management process of RCA Laboratories, one of the major corporate laboratories that over its nearly fifty-year existence was responsible for important innovations including color television, semi­conductor lasers, flat panel displays, power transistors, integrated cir­cuits (CMOS), solid state imagers, and TV broadcast cameras, among a long list of contributions that changed the world in many ways.

My purpose here is to distill lessons applicable to technological enterprises in their management of research and development facilities that bring out the best creative efforts of their staff. I learned that creative people free to pursue their original insights are key. This must be combined with talented management with a dedication to commercializing valuable innovations and ensuring successful execution by the organization. This is a hard-to-realize organizational structure, which is why so few institutions of that caliber have existed. But excellent corpo­rate laboratories still exist in specialized technologies under capable management.

The original big corporate laboratories were part of conglomerates offering unrelated products in diverse markets. Such diversified compa­nies have largely disappeared. The major corporate strategies have since evolved to more specialized businesses; and a common management idea is that new products can be acquired by buying companies offering new attractive products rather than developing them internally. Still, many companies have continued to rely on internal innovations in specialized laboratories. Noteworthy in that category are Applied Materials in chip manufacturing technology and Corning in glass technology.

RCA Laboratories

Let me begin with a description of the RCA Laboratories. The Radio Corporation of America (later RCA) was founded in 1919 to commercialize wireless technology developed primarily by Marconi and General Electric. The leader of the company as it grew into a major public corporation was David Sarnoff (1891–1971). A poor immigrant from Russia, without formal education, his first job was as a telegraph operator at Marconi, and he never lost his love of technology and its applications. (There were stories circulating during his lifetime that, as a Marconi telegraph operator, he received the wireless SOS from the sinking Titanic, but this is not true.)

Sarnoff was an opportunistic and brilliant market strategist who saw the potential of consumer radio broadcast networking in the 1920s. As a result, RCA built the National Broadcasting Corporation (NBC) to provide consumer radio services. Sarnoff became CEO of RCA as it became a publicly traded company and global electronic technology leader. It became the darling of Wall Street before the Depression.

Sarnoff saw the potential of television broadcast in the 1930s, and RCA demonstrated its TV broadcast technology at the World’s Fair in 1938. He was never concerned about corporate profitability as the prime RCA objective. His goal was technology market leadership. World War II stopped commercial development, as RCA focused on developing products for military needs. In fact, Sarnoff received a commission as brigadier general from President Roosevelt for his services, and for the rest of his life preferred to be addressed as General Sarnoff.

At the end of the war, Sarnoff returned to his focus on television and the Laboratories were formally organized as a separate organization. Developing color television became its major activity, and in the 1950s, the first commercial broadcast was made by NBC using RCA-developed technology. This was a great achievement, with the important feature that existing black-and-white television receivers were able to display color broadcasts (in black and white), which allowed commercial color broadcasts to be made while color receivers were still reaching the market. RCA had, in effect, established a color television monopoly, but by broadly licensing the technology, the benefits became available globally while producing a big licensing income for RCA.

By the 1950s, the RCA Laboratories, now located on a beautiful campus in Princeton, New Jersey, had demonstrated their capabilities and were well funded by RCA to develop new products for all of the company’s electronic product divisions, including the defense products division. The Labs had about 1,600 employees divided into units with different missions. The largest units focused on television receivers and broadcast systems and worked closely with the RCA division that manufactured and marketed these products. Other units focused on microwave communications and applications such as radar systems. The semiconductor units focused on materials, processes, devices, and applications.

The funding for the Labs came from the RCA annual corporate budget and was in addition to the R&D budgets of the individual product divisions. In fact, the operating costs of the Labs were much less than RCA’s patent licensing annual income. Most of the licensed patents came from Lab personnel, so it was generally accepted that the Labs were in effect self-supporting. But this did not mean that determining the size of the budget was not an annual management challenge, particularly when corporate profits were under pressure. Because of this, the budget of the Labs remained constant for many years, increasingly dependent on government contracts to fund new initiatives in areas like wireless communications and semiconductors.

Some Personal History

I joined the RCA Solid State Division in 1959 and the Labs in 1966, after completing my PhD in material science as an RCA Sarnoff Fellow. After four years of product development in the Solid State Division, I joined the Semiconductor Research Department.

There was a hierarchy in the staff that determined their role and degree of professional independence. The technical work was the re­sponsibility of the three hundred members of the Technical Staff (MTS), all with PhDs. They were supported by technicians and other personnel that assisted in experiments and operated the facilities and infrastructure. In effect, the MTS were the creative backbone of the Labs, and the position carried a great deal of prestige. At the top of the pyramid were a few Fellows of the Technical Staff. These people had a unique position, and were free to use their time as they deemed appropriate for productivity and reported to the vice president who headed the Labs. Fellows were appointed to that position as a result of extraordinary achievements.

I was struck by the staff’s attitude. MTS people loved their work. Scientists in the semiconductor unit were pursuing research in new phenomena, either through experiments or theoretical calculations. Researchers mostly worked in individual laboratories, using whatever equipment was needed to conduct tests and measurements. A central manufacturing facility prepared samples of devices and materials for study. While there was a product objective, it was not merely incremental or “evolutionary.” This was very different from the atmosphere in the product divisions, where engineers focused on meeting deadlines on specifically directed product developments—as I had become familiar with when I joined the Solid State Division. While many of the projects being worked on in the Labs appeared unrelated to commercial prod­ucts, I discovered later that this kind of exploratory technical research set the stage for many of the breakthrough contributions that the Labs made—including displays, integrat­ed circuits, light emitting diodes, and imaging devices.

Each year, the projects were defined and staffed. Some projects were self-generated by researchers, others were designed to meet division needs. Management encouraged projects that promised big steps for­ward in product performance. So I looked for such a project in the semiconductor field. My first task was to find a project to work on, and in that spirit I spoke to many researchers about their projects and possible opportunities to collaborate. Nothing of interest came up—I was looking for a project that I could conduct as an independent researcher and started to do a lot of reading to become familiar with ongoing research in the semiconductor area. Much of the work was not exciting. I then came across research results on semiconductor alloys and the defects introduced by the addition of certain atoms. Given that semiconductor devices were all being made with materials that included atomic additions, this promised to be a big field.

I was also very much alone at the Labs in my interest, although there were publications from other laboratories. This turned out to be characteristic of my project interests later. I somehow got interested in technical areas that appeared to me neglected—I believed that discovery opportunities were likely to be found in these fields as many others pursued more popular areas.

The reason I mention this personal history is that many innovations at the Labs got their start from such initiatives to explore new areas. The fact that researchers had the freedom to pursue such interests was a major strength of the management of the Labs. They had the freedom to discover and the good sense not to waste time and resources on ideas that proved to be unproductive.

My first project was an illustration of this beneficial process. As I studied the alloy gallium arsenide, which had emerged with promising optical properties, I decided to study the impact of atomic additions on its properties. I studied the optical properties of gallium arsenide, and the light emitting properties of LEDs made with this material, and I discovered that the addition of silicon enhanced the optical efficiency of the crystals by a big factor. This led to the construction of very efficient light emitting diodes emitting infrared light, and one of the product divisions commercialized these diodes (part of a switching system) after I worked with them to develop a commercial process. I found this application because I visited the product division in Lancaster, Pennsylvania, to discuss my work with the engineering manager.

I mention this story because it illustrates how innovations from the Labs created new product value. No manager told me to work on gallium arsenide materials and LEDs, and I took the initiative to explore applications with the product division and contributed to develop a process to manufacture a revolutionary new product. My experience also shaped my approach to creative management as my managerial responsibilities grew.

Self-driven innovation by active researchers was an important feature of the Labs. This was complemented by two other factors. The first was informed management, with the talent to identify worthwhile developments and provide the support to reach the product stage. The second was the internal culture of participatory project work and the practice of identifying problems standing in the way of practical results, and getting the right resources to solve them.

How Practical Semiconductor Lasers Emerged

How the semiconductor laser became a commercial product illustrates this process. It shows how the flexible organization of the Labs made it possible in record time, and I was in the midst of it.

My introduction to semiconductor lasers came in 1967 during a chance meeting with Dr. George Dousmanis, a Greek-born physicist who was studying these lasers under a contract from the U.S. Army Signal Corps. The objective of the project was to develop an infrared light source for night battlefield illumination. Vacuum tube light sources were used, and the idea was to replace them with solid state laser light sources that would be more intense and more reliable.

Dousmanis invited me into his lab to show me his lasers. The lasers operated best refrigerated and with short, high-current density pulses of 100,000 amperes per square centimeter of device area. As I watched their light output under a microscope fitted with an infrared viewer, one laser after another failed after a few minutes.

I asked Dousmanis whether what I was watching was the state of the art. “We are very early in the development of these devices, so this is not surprising. At this time I am focused on understanding the physics. Practical results will come later.”

These were laboratory curiosities, and Dousmanis did not live to see the eventual realization of their immense value; he died suddenly shortly after our discussion. I went to see my supervisor, and offered to take over the responsibility for the contract. No one else had an interest in the subject, so I found myself responsible for a project about which I had no prior knowledge. What intrigued me was the possibility of improving the performance and solving the reliability problem. I felt that useful applications would emerge if that was done.

This project also started my working partnership with Herbert Nelson, a gifted chemist who had developed a crystal growth method for gallium arsenide structures called liquid phase epitaxy. He had worked with Dousmanis and built the lasers he was studying. I also started my work with Frank Hawrylo, a very talented technician who worked with me for many years until I left the Labs in 1983.

I focused our initial work on determining the causes of laser failure. We discovered two causes—one related to the high optical power at the facets and the second to crystal defects that initiated laser failure. We published those results, which were the first to show that laser failure was caused by factors thar could be controlled. In fact, I was invited to Bell Labs to present a seminar on the subject.

This left the problem of excessive current density needed to produce lasing and the need for refrigeration to reduce that current density. I had carefully studied the scientific literature on the physics of lasing, and I became convinced that the way to reduce the operating current density was to reduce the internal volume of the lasing region by somehow restricting the injected carrier flow and optical activity to a low volume near the injecting region. We conducted a number of experiments changing the laser structures and, in fact, the lasing operating current density was reduced even at room temperature.

The breakthrough came from the addition of an aluminum gallium arsenide layer at the lasing region edge, producing a gallium arsenide–aluminum gallium arsenide heterojunction structure. The result was spectacular—the lasing threshold current density at room temperature was reduced to 10,000 amperes per square centimeter from 100,000 amperes per square centimeter in previous structures. Later work produced lasers with five hundred amperes per square centimeter as the laser structures were enhanced and their reliability improved to many thousands of operating hours.

Nelson and I were not allowed to publish these results until 1969, while the RCA product division started manufacturing these new lasers for commercial sale. We also discovered that, in parallel to our work, other laboratories had conducted similar work on aluminum gallium arsenide laser structures. But we were the first to market with practical and reliable devices that found applications quickly.

These became commercial products produced by the RCA division in Lancaster in 1969. Two of the earliest applications were military. The first was the Miles program in field infantry training and consisted of the following: Each soldier was provided with a rifle fitted with a laser diode and the laser pulse could be aimed as if a bullet were being fired. He was also fitted with a light detector. When hit by a laser beam, the detector would record it as a hit—hence a casualty. This technology allowed several hundred soldiers to be trained in situations that simulated battlefield conditions.

The second application was in air-to-air missiles—the Sidewinder being the major one. These missiles were originally fitted with a heat sensor that detected the exhaust stream of the target aircraft and exploded upon reaching the target. In practice, however, sharp turns by the target aircraft would allow its escape, as the missile continued its path parallel to the target. The kill effectiveness of the Sidewinder missile was greatly improved by placing a light pulse emitting laser diode and light sensor in all four quadrants of the missile. In effect, each laser/detector combination was a proximity fuse. When pulsed laser light was reflected back from a metallic surface, the missile would explode. So fitted, a missile would be effective flying in the proximity of the target aircraft, greatly improving its kill possibility. Such missiles were first used by British planes in the Falklands War, with results that indeed showed the value of the technology in combat. This became standard on all Sidewinder missiles globally.

It is interesting to note that such systems combining pulsed lasers and sensors are now called Lidar and are used in range determination in autonomous vehicle navigation systems. In such systems, the time between the laser pulse emission and its return light from an object is measured and gives the range. Multiple laser/sensor combinations on the vehicle provide the computerized description of the surface encountered by the vehicle.

The laser application with the biggest commercial impact, however, was fiber optic communications. Today, fiber optic communications systems enabled by semiconductor lasers link the digital world, which would not exist otherwise. This project started when I met Corning Corporation’s head of fiber optic development, Dr. Robert Mauer, at a conference, and kept abreast of the development of fiber optics that moved into two directions: single-mode fibers with glass cores of about five micrometers, and multimode fibers with thicker glass cores. I made a trip to the Corning Laboratories and traded one of my lasers for several kilometers of single and multimode fibers.

We set up an optical communications demonstration with a laser emitting pulsed light into a two kilometer length of fiber that was detected at the other end by a sensing circuit. We did this at about 100 kilobits per second, and the exhibit was in the lobby of the Labs. Visitors would usually look at this little exhibit without comment—not recognizing the ultimate value of the technology. One visitor, an expert in communications, did notice. “Very interesting,” he said, “But I can’t see a big market for such systems. If you are right and many megabits per second of digital data can be transmitted on a strand of fiber, you will need only a few such links. For example, one between New York and San Francisco.” So much for visionary communications experts.

Our work paid off. We developed a prototype fiber optic communication system for the Navy used in undersea communications—the first such system—and the RCA commercial lasers were used by many other companies.

A Flexible Organization

With rare exceptions, the Labs’ policy was to promote managers from within the organization on two principles. First, a record of technical achievements that showed them to be outstanding contributors and, second, a record of team leadership in turning ideas into products. As a result, the managers combined proven technological competence with business skills in product development acquired through working with product divisions.

I discuss my experience as a young scientist to illustrate how the organization was able to be so flexible in converting important innovations into valuable products. The laser project illustrates how ideas were translated into products because of the collaborative resources available that could be focused as needed, and the ability of product divisions to quickly turn prototypes into commercial products.

The key to success was the collaborative culture focused on realizing successful products. The organization was built around exploiting individual talent and drive. The job of management was to ensure that all parts of the organization worked toward meeting desired objectives—bringing important new products to market by the product divisions.

To that end, there was a necessary team effort between creative talent and execution talent. Lab inventors commonly lacked the ability to actually complete successful products on their own. Talents had to be linked to achieve practical results—including product division staff. All shared recognition for successful products. An open spirit of inquiry allowed problems to be identified and then addressed by talented people working toward practical solutions.

The organization worked because of excellent management experienced in technological development and minimal bureaucracy. Once a project was deemed on track for a product by the agreement of Lab and division management, the typical next step was to appoint a project leader who organized and coordinated the work in all needed departments. In the laser development project, that person was me. The leader would be a member of the technical staff or the group head who would have access to the needed resources, with the support of the managers in each department, who were kept informed of resource requirements. When product divisions became involved, a division leader became part of the team.

An important part of the project was funding from special funds managed by the Labs to provide the initial capital needed by the product division to get the new product to market. In effect, the Lab funds paid for the research and development and the early parts of the transfer to product divisions. The idea was to avoid delays due to unplanned expenditures in new product introduction.

In effect, the whole organization was geared to create successful new products and avoid impediments in moving innovations to the market. To facilitate this process, senior researchers maintained contacts in the product divisions with people in marketing, product development, and manufacturing. Such contacts brought to light problems or competitive issues, and enabled the participation of Lab experts on a timely basis.

Another big benefit from such interactions was that good personal contacts were maintained, smoothing the transfer of good ideas and ensuring that difficult problems could be solved. Such relationships were particularly important in fast-moving technologies such as semiconductors, where expert help would be provided to address manufacturing problems.

A Culture of Constant Inquiry

The culture of the Labs was one of sharing experience toward meeting objectives. Help was solicited from all departments. The common practice was for research project teams to give periodic seminars on their work, at which attendance was expected of division management and related technical professionals. The objective was to solicit helpful in­sights to solve problems or even get the temporary participation of new people on the project.

I remember examples of such open meetings that had great consequences. I gave a seminar on my work on semiconductor lasers, and in attendance was a new MTS, Mike Ettenberg. I showed how the laser power emission increased with the current flowing in the laser, and Ettenberg then asked whether this was the total power emitted or just that captured by the light sensor. I answered that this was the power emitted by one side of the laser because the other half of the power emitted was in another direction not captured by the sensor. “How about building a mirror as part of the laser that would redirect internally the light power now being wasted?” he asked. I pointed out the difficul­ty of doing so given the microscopic laser dimensions. Ettenberg joined my team and invented a method of actually building a microscopic mirror in the laser structure that resulted in a great increase in the emitted power for the same operating current. The patented Ettenberg mirror became a standard laser feature in RCA’s laser products and launched his very successful career as an innovator in laser technology.

The open system of information sharing was important in uncovering roadblocks to major innovations. Here is another example: recognizing the limitations of existing transistor structures in scaling integrated cir­cuit chips, a researcher designed a new structure involving silicon oxide layers (denoted field effect transistors). As the team leader described the device in a seminar, he also mentioned that its performance deteriorated with operating time. This led to a discussion about the possible cause. One chemist suggested that the failure was due to the electric-field-induced motion of some atomic species. This led a new team of researchers to successfully eliminate contamination of devices. This field effect transistor device became the basis of most future integrated circuit devices operating with great reliability.

These examples illustrate the impact of information sharing at the working level that enabled unrelated researchers to solve important problems. But it was also a delicate managerial problem that could lead to chaotic project work if people felt free to take on new activities and neglected their existing project commitments. In my experience, I never found this to be a sustained problem because each researcher lived in an environment where a key to success was spending his time on productive endeavors.

To that end, a key to making the organization productive was the role of group heads in allocating resources. Group heads were experienced researchers who were highly knowledgeable about the activities in the Labs and the importance of the projects in their areas. When some­thing came up that required a full-time change in a researcher’s activity, it was the responsibility of the group head to manage the process on the basis of priorities.

This brings me to the motivation factor that drove the Labs’ performance. The organization did well because the contributors loved their work and the environment of creativity where personal discovery was rewarded and appreciated. Most were ambitious. They worked for recognition from peers and management at the Labs and reputation in the industry. This is why the ability to publish, after review, original research was so important. Publication in the technical literature was allowed with confidential information protected. Outstanding work was widely recognized. Each year achievement awards for outstanding work were given to selected individual contributors. A cash bonus was part of the award.

A great deal of effort went into staff evaluations by management to maintain a high level of staff quality, but an important feature of the Labs was the modest voluntary loss of personnel. Those who left joined RCA product divisions in managerial positions or joined universities as professors.

A Changing Culture

Because many researchers were not subjected to fixed budgets controlled by product divisions, they were able to pursue long-term projects. In some cases, these projects produced important results, but not always RCA products, for various reasons. A big missed opportunity was in the flat-panel displays based on liquid crystals that today are ubiquitous.

The flat-panel liquid crystal concept began with the observation of a researcher that certain chemicals that he identified (specific liquid crystals) placed between two pieces of glass exhibited the unique property of switching from opaque to transparent when subjected to an electric field. This observation led to a team of chemists studying the effect and building the first display. There was immense interest in such displays. But the technical challenges were daunting—the first being the fact that the liquid crystal displays stopped switching after some cycles. Gradually, a growing team of scientists improved the reliability of the displays, and RCA set up a product line for making such displays for use in electronic watches—the first flat panel displays to hit the market.

Of course, corporate RCA’s larger interest was in eventually producing flat television receivers that would “hang on the wall.” But this was far in the future, because it was not known how to produce color images with such displays.

It was clear that investments in the hundreds of millions of dollars over years would be needed to reach major product objectives given that all aspects of the technology were new. But there was no longer interest in such risky ventures at RCA corporate headquarters, which by this time was committed to lower-risk corporate diversification through acquisition of consumer products and services—and skeptical of taking big technology risks.

The corporate decision was made to license the liquid crystal display technology rather than pursue internal product development. So it was licensed to the Sharp Corporation in Japan, which invested many millions of dollars to bring displays to the market—initially for calcula­tors and computer terminals. Flat-panel television receiver products came much later as the production technology matured. Today, of course, flat panels have totally replaced the vacuum tube devices, and the value of the displays produced annually is in excess of $100 billion.

Would David Sarnoff have decided otherwise? Probably. But he was gone.

This was the biggest missed opportunity for a technology created by RCA research. The cause was the different character of the corporate CEO. Unlike the color-television project dear to David Sarnoff, the cor­porate will to undertake this risky project was absent. But the product divisions needed innovative products, and this continued to be the major focus of the work at the Labs.

The Changing Business Environment

Until the 1970s, the United States was the clear leader in global electronic industries. But the world was catching up. Starting in the 1970s, the market pressures on the RCA Corporation from Japanese competitors intensified, particularly on color television and other consumer electronic products that were big contributors to RCA corporate profitability. At the same time, military and space system electronics required dramatically improved solid state devices—hence Lab projects shifted increasingly to semiconductors, with many Defense and NASA-funded projects.

Semiconductor devices were improving rapidly and becoming part of practically every electronic product. The Labs had to restructure its activities to meet the growing needs for solid state technology. This meant investments in increasingly sophisticated equipment and larger teams displacing the work of researchers in small laboratories.

The result of these developments concerning semiconductor research was that the Labs became more focused on big projects and new equipment needed to process sophisticated devices. To that end, we built new and costly facilities to meet these needs. As a result, the previous way of operating, centered around individual researchers working in small laboratories, gave way to work in large facilities as part of a team.

Many researchers working on semiconductors had to learn a new way of innovating. The transition generally went well as individual researchers adapted to larger team work—and acquired software skills. We recognized early the importance of software in electronic product design and system performance, and invested heavily in computer systems and training.

These new facilities allowed new processes to be developed that were transferred to RCA production facilities because they had been devel­oped on equipment that would eventually scale to commercial production. For example, the CMOS (Complementary Metal Oxide Semiconductor) process for making integrated circuits was developed and eventually reached production. So was the technology for solid state imagers and lasers. These contributions changed the industry. Note that CMOS has since become the basic process universally employed for constructing integrated circuits. It was one of the landmark RCA contributions to the technology.             

RCA was acquired by GE in 1986. GE under CEO Jack Welch would become much more focused on M&A and financial optimization. The Labs were spun out by GE as an independent corporation—the Sarnoff Corporation—that derived its income from product development contracts with corporations and the government. It later merged with SRI International, a not-for-profit technology contract company (formerly called the Stanford Research Institute). For some time, I served as chairman of the board of directors of the Sarnoff Corporation before its merger with SRI.

The Future of Corporate Research

Corporate research aimed at truly innovative results through long-term project work is vital to sustain a growing economy in a technologically driven world. The big labs that pioneered so much of our current technologies are not coming back. They were killed by new foreign competition, the increasing capital intensity of research projects, and changing executive attitudes and incentives that led to an increased focus on M&A and financial strategies to produce quick returns rather than pursuing technological leadership. All of these factors combined to bring about the demise of the labs, and these issues are still present.

So what do we do now to recreate some of these successful conditions even if we cannot recreate the labs’ institutional framework in its entirety? We should begin by disabusing corporate leaders of the idea that building valuable technology companies is easiest without significant research investment. Many executives today believe that technology moves quickly, and hence buying businesses to acquire new products is the smart long-term strategy. It may sound smart, but it is not in reality. Even if acquisitions are made, mismanagement by an acquiring company not equipped to compete in the relevant technology markets can lead to failure. There is no easy shortcut.

From my experience, the strategy of avoiding product research risks by using mergers and acquisitions to stay competitive is not viable long term. Acquisitions to expand products cannot be planned—hence missing market opportunities is common with such a strategy. Having been a technology company investor for many years, I can testify to the importance of internal research complemented by acquisitions to build valuable companies. But this reality needs to be publicized in management and investor circles, because it takes great skill to manage research organizations. There is no choice if building valuable technology businesses is the objective and many examples show that it can be a winning strategy.

It is in the nation’s economic interest to grow corporate research funding. In this regard, we need to make investors, business managers, and the public at large aware of the value created by research investment. Successful corporations continue to derive much of their value from outstanding proprietary products developed through creative research management. We mentioned two examples—Applied Materials and Corning—but it is not well recognized that Apple and Google owe much of their success to outstanding creative research. This did not happen by accident but was a result of the policies of the founders and senior management, who recognized the value of proprietary software, patient project management, and hiring the most talented (and best rewarded) researchers.

The second activity to promote research is through special government policies. Preferential tax treatment should be provided for research funding. The most useful government programs, however, should focus on improving the flow of research results into commercial products by funding programs to subsidize (at least partly) strong collaboration between corporations and academic institutions. Today, universities and government laboratories produce many innovative developments that never reach the market for lack of the right resources. I mentioned earlier the funding we used at the RCA Labs to fund the transfer of new products to product divisions. Without such funding, the financial restrictions in product divisions would have discouraged such programs.

Finally, better academic management programs should focus on re­search management, replacing the faulty concepts that short-term return on capital investment is the path to building valuable companies. Everything in my experience has shown me the folly of short-term financial management. It is the path to ruin in the technology-driven world we live in.

Maintaining a Competitive Edge

My purpose here was to discuss through example an organizational process that combines the discipline needed to commercialize great new technologies with the individual researcher initiative that maximizes rare innovative talent. From my experience, I know how challenging this is. Excessive freedom results in wasted resources and failure. Too restrictive an environment kills smart risk-taking and leads to “me-too” products. But organizations that manage this process well emerge as winners. And for the United States, that is what is needed to maintain a world-leading competitive edge.

The lesson about fostering creativity that has been most useful to me is the importance of linking individual initiative and organizational needs through proper attention to all aspects of the complex chain of development from invention to product. This process made possible the great innovations at the RCA Labs and other great laboratories. As technological fields have grown increasingly complex, with new soft­ware playing a key role, the idea of the individual innovator being the key starting point for great innovations appears obsolete today. Not so. Consider the experience of Katalin Kariko and Drew Weissman, 2023 Nobel laureates in medicine for their work on mRNA vaccines, who began their great collaboration after a chance meeting in a laboratory copier room. Their vaccines were turned into products by the company BioNTech.

With increasing complexity, however, comes increasing importance of execution and efficient management to turn great new ideas into practical reality. Innovators start the process. Great organizations turn great ideas into great products.

This article originally appeared in American Affairs Volume VIII, Number 1 (Spring 2024): 53–69.