Battelle Institute CEO Carl Kohrt: Full Kohrt Press

According to the world’s largest nonprofit R&D organization, the Columbus, Ohio-based Battelle Institute, U.S. companies should be worried that countries such as China and India are graduating 12 times the number of engineers as the U.S., a trend that may signal that the country is losing technological ground in relation to other markets. For example, worldwide R&D is expected to reach an all-time high of $1 trillion in 2006. China and Asia‘s share of global R&D grew in 2004-2006 and the U.S., Americas and Europe‘s share dropped.

Reports indicate that some leading U.S. technology companies are cutting their R&D budgets to save money, including Sun Microsystems, Bell Labs (Lucent Technologies), Hewlett-Packard (from $3.7 to 3.5 billion) and Microsoft (from $6.6 to $6.2 billion). A recent R&D spending forecast published by Battelle in January of this year even stated, “the support of research and development runs the risk of being viewed as an expense and a luxury, rather than an investment, and one that can be shelved until more funds are available.”

The $3.4 billion Battelle, whose research helped launch such products as the Xerox copier, compact discs, fiber optics and the UPC Bar Code, is headed by former Kodak EVP and CTO Carl F. Kohrt, 62, who helped the Rochester company commercialize entirely new color imaging systems and helped transform the company’s R&D function to one more aligned with digital and networked businesses.

Recently, CE spoke with Kohrt about the prospects for commercialization of breakthrough research, the current state of research, and what CEOs need to do to keep an innovative edge for their companies.

In what areas can we expect to see the next wave of technological innovation?

Innovations often arise from intersections of technologies and disciplines, such as the one between ultra high-speed computational capability and biology. Biological science, because of its complex nature, has been historically more observational than predictive. With computational power, complex processes can be modeled in a way that will guide specific experiments that allow higher degrees of predictability. Systems biology is a cross discipline that will lead to two major exciting business opportunities: personalized medicine for humans and bioenergy.

At Battelle, we are very involved in both. Personalized medicine is the ability to define and predict on an individual basis why you get a cold and I don’t, or why you are subject to a particular pathology or receptive to a therapy that works for you, but doesn’t work for me. This is, at the basic level why people are different at the cellular level, something we have never been able to figure out. Understanding this will have a huge impact on health care and pharmaceuticals. New kinds of businesses will be created as a result.

One of them, for example, may involve the idea of using microorganisms to produce different kinds of energy much as we use ethanol today as a fuel. But in the future, our use of microorganisms will be much more sophisticated.

The second area concerns the idea of using carbon-based materials more efficiently. This involves converting coal or shale from solids to liquids in more efficient ways. A third area involves manipulating materials using nanotechnology. Some work is speculative but overall such processes will have a huge impact on our lives over the next 20 years and beyond.

For example, gold is an element that is not very reactive, but it turns out that if you make a monolayer of a few hundred atoms of gold, which you can now do, in a nano sense, gold becomes highly reactive. This technology is useful, for example, in taking sulpher out of fuels. This couldn’t be done just a few years ago.

How revolutionary is nanoscience in terms of the business opportunities?

I’m not an expert in this field, but keep in mind we’ve been dealing with nano-based materials for a long time. The emulsion process in color photography is based on nanoscience. There are nanotubes and other nano materials that are now starting to show up in material composites. They show up in car bumpers to add strength and lower the weight. Similarly, nanoscience will allow new or improved capabilities in familiar products.

Another example will be new polymers that can be used for industrial processes or for new materials. Still another is creating a process that allows inhaling insulin, or other therapies tailored to one’s passageways. The downside of this is that we don’t really know what the health impacts are after ingesting particles of this size. So far nothing bad has shown up, but it’s an area that we need to understand better.

What advances do you anticipate in biotechnology?

The notion of personalized medicine will change the way pharmaceuticals are defined. Once it becomes possible to identify and tailor therapies for individuals, drugs can become far more precise. Up until now, if a drug improves the condition of, say, 70 percent of people, with side effects for 15 percent and no effect for the remainder, it’s considered a reasonable success.

Is that what the human genome project was meant to resolve?

Well, the human genome project was meant to provide the basis for resolving that, it’s not the resolution. It provides an atlas or guide as to where to start looking but only that. Once you get into a particular arena the gene can indicate a proclivity, but it doesn’t tell you the mechanism or reason why something happens. That occurs at a cellular level, where maybe 200 different chemical reactions occur simultaneously. This is where systems biology comes in, in trying to understand and unravel those mechanisms.

You say several breakthroughs are needed to realize the full potential of alternative energy. Can you elaborate?

Let’s take solar energy for example, most of which continues to be based on silicon. A number of attempts to make thin film versions of silicon have been made but the efficiency converting light to energy hasn’t changed very much. The range currently is somewhere between 18 and 30 percent. Once we improve the conversion efficiency of light into electrons in the vicinity of 50 percent or higher, we are in a position to attach many more devices to solar generation. Maybe new materials will provide the needed breakthrough. A number of groups such as the government’s Renewable Energy Laboratory in Golden, Colo., a number of other companies are devoting their efforts in this area.

The second is transmission. We need to improve the superconductivity to ever-higher temperatures. The Holy Grail is storage of energy. Think of it this way. The Hoover Dam generates much power but it’s not where most people are. When energy is generated during off-peak hours, if it isn’t used it goes away. Think of what could be possible if we could store large quantities of electrons that can then be used at a later stage in a cost-effective way. Right now, there isn’t a good way to do that. Improvement in cost-effective storage is a tough problem but could revolutionize power.

One reads much about the promise of ethanol as a renewable energy source, but some argue that this effort is a waste of time because the resources required to extract energy from corn is highly inefficient?

Yes, that’s true.

So why do people bother about something that’s not cost-effective?

Well, each has his own message. Say what you will, but the effort around ethanol has at least legitimized the process of looking for alternative energy sources because we can’t continue to rely on carbon resources for energy use only. The pursuit of ethanol as an alternative fuel from a thermodynamic and total energy cycle sense actually costs more.

What about nuclear?

Our future has to involve nuclear energy. We operate the Idaho Nuclear Laboratory, which was put together two years ago specifically to pursue the design of what’s called the fourth-generation plant, the purpose of which would mean two things: It would be more modular and more effective. Fourth-generation plants have lower waste and operate at a temperature that could actually generate hydrogen cost-effectively. Today, generating hydrogen is not cost-effective. The U.S. must re-engage in developing and using nuclear power as a part of our overall energy portfolio. The fact that we have not built a new plant for more than 20 years has hurt us.

So, the most “green” source of energy from an emissions perspective is still politically incorrect?

Nuclear is highly politicized, but on the other hand there are legitimate concerns that people have with transportation and storage of the waste. So that we can really move to technologies that are superior in terms of all the things that we have talked about.

This year, Japan is credited with 350,000 patents versus the U.S. with 169,000. What does this tell us about each country’s innovation effort?

A point of caution about patents. The number of patents is not the only measure of merit, because many patents are of limited value. They are often extensions of existing patents. A large number of patents often are used as a defensive or a negotiation technique. My product is bigger than yours and if you want to spend the time to try to find out how many minor details are worth anything, you must negotiate a deal. I am always a little cautious about numbers. I look at citations. How many are cited as fundamental? When looking at it this way, you rapidly learn where the real innovation is coming from.

The second way of measuring this, which is partly a cautionary tale, is to follow the patent numbers, generated outside of the U.S., particularly with respect to the manufacturing process. The rule of thumb I use is a 3:1 ratio. In other words, about three patents are associated with your actual attempts to commercialize and manufacture as opposed to what comes out of basic R&D.

For example, I may invent an idea but I will need engineers to try to make it practical. This is where true innovations occur. In my opinion, if you don’t have a manufacturing base, then you are not likely to have as many patents to complete the circle. This needs to be looked at by industry, but it indicates where the manufacturing base has gone.

To what degree has U.S. competitiveness, relative to other markets, improved, stayed the same or gotten worse?

This is hard for me to talk about knowledgeably because I don’t know all industries and markets. It’s very easy to say that we are in big trouble as a country because of a variety of things. If I have one criticism of American industry it is that we still are awfully U.S. centric when it comes to R&D. Ideas are as global as markets. Any company, even one that’s just beginning, needs to be much more global in its thinking and be willing to form relationships outside of its borders.

Do you mean conducting R&D in other countries or just collaborating?

Both of those models work. Much has been made of outsourcing. Let someone else do it. Depending upon what you are seeking, it can work. Battelle, for example, opened a facility in Korea. Speaking from experience as one who lived in Asia it’s hard to develop both the relationship and to know the market as well as getting the ideas unless you are actually present.

Companies need to access as opposed to just contracting. They need to access because they’ve actually made an investment in the country. This is a battle for minds. We need to have our own scientists and engineers in the U.S., but we also need to tap those from other countries. So if you decline to R&D anymore, and decide to buy it elsewhere, that’s a limited and dangerous short-term strategy.

P&G maintains a very high level core of both short-term and long-term research but they expand their reach by forming collaborations around the world, whether it be with universities or other companies, with a view towards insourcing as well as exporting ideas. This is a very robust model when done correctly.

How should CEOs assess their investment in R&D especially when the link between expenditure and returns isn’t clear cut?

A CEO should start with the understanding that there is a role for discovery as much as there is a role for application but there’s not a bright line between the two. Second, don’t fall into the trap of trying to demand an invention by a certain time. Also, R&D allows you to discover what doesn’t work, which can be valuable because it can steer you away from what not to pursue. Sometimes this is an awkward concept to embrace in an organization.

Finally, research allows you to discover new developments outside your company or industry. Often, and especially in electronics, a lot of the inventions develop in unexpected places that then were embraced by electronics.

Above all, look at the interfaces between disciplines or between industries. That’s where the really good stuff is. It beats beating the same horse for the remaining bit of technology that you are familiar with.

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