The art, practice, and rational for leveraging research on the outside.

By: Peter C. Lytle

Historic Perspective
Five to seven million years ago man's ancestors roamed the earth. It took another three million years for those ancestors to begin making tools. Homo Erectus or "erect human", one of our closest relatives emerged only about 500,000 to 700,000 years ago. Homo Sapiens or "the intelligent human," emerged approximately 250,000 years ago. Two hundred thousand years ago humans developed speech and the art of verbal communication began. With this very complex innovation, humans went from imitating sounds found in nature to forming words with distinct meanings, which could be replicated by others. Man had gained the ability to pass knowledge from one person to another without mime or experiential activity. He could explain the location of herds to fellow hunters in detail or tell his children where to find arrow root tubers when his legs would no longer carry him to the hilly edge of a river bed down stream.

The ability to store knowledge (information) is perhaps one of the most important aspects of development for any society. The ability to use the minds of a clan to store specialized information about survival allowed early man to grow in dominance. But minds are limited in their capacity and non-critical information is often lost over time.

About 3500 B.C., the Sumerians began recording permanent thoughts in the form of pictures. This could be considered the first time information was stored outside the human brain in any significant way. Although symbols and drawings changed from artisan to artisan, they did have the ability to represent abstract thought and communicate ideas over the years.

By the 11th Century B.C., the Phoenicians had exhibited a fully developed alphabetic system. For perhaps the first time, more complex thoughts could be recorded and reused by following generations. The combination of verbal communication, storage of information and an understanding of how to use that information started a rapid series of intellectual events that would change the shape of the world.

Man began farming only 8,000 to 10,000 years ago and went from a nomadic lifestyle to living in settlements. Records of religion, technology and laws soon infused with daily life. A calendar told them when to plant; medical procedures were painted on tablets; laws were carved on wooden planks. Information was shared to help a community survive.
The first book ever printed is thought to have been the Diamond Sutra. It was a wood block, relief printing done in China a little over 1,000 years ago and that couldn't have happened without the development of paper 800 years before. However, technology was slow to transfer. The technology to make paper, for example, took over 1,000 years to make its way to Europe.

The next major communications and information development did not occur until 1440. It then took another 350 years before Aloys Senefelder developed Lithography, "the peoples' printing press". Printing as a means of information storage did not make another major change to truly inexpensive mass production until the 1940's with photo typesetting and then the 70's with computer typesetting.

Next to weapons and tools, printing did the most to change the way man views himself and nature. Printing, as a convenient method of mass communication and information storage, has really been with us only 500 years. Changes did not stop however; photography arrived in the 1830's and changed the course of visual recorded history. It wasn't until the telegraph arrived in 1844 that the modern communication and information era took off. Telephones were introduced in 1876, Phonographs in 1877, Film was introduced in the early 1890's, Radio in 1895, Wireless Telegraph in 1901, Tape Recorders in the 1920's, Television in 1945, the first commercial computer (Univac 1) didn't appear until 1952. Telstar 1, the first United States communication satellite of significance was launched in 1962. The VCR hit stores for sale in the late 70's. The first user-friendly computer, the Macintosh, went on sale in 1984. In the last twenty years microprocessors have penetrated products in 15 of every 20 American homes. Twenty years ago fewer than 50,000 computers were in use; today more than 50,000 computers are sold each day. Technology and science are creating speed; speed is the yardstick opportunity is measured by.

The Information Age
When developing a new technology or product today, we start with what is already known, who owns what patents, and what other information is available. Then we evaluate the "what if" theories and look for all other information that exists on similar ideas. It goes on and on until we know all there is to know. We scan 3,000 languages, billions of pages of print, thousands of databases all before any execution begins on the idea. We access extensive outside research to advance our knowledge but also to speed up the process.

Thirty years ago the average patent would receive press in fewer than fifty publications worldwide. Today that same patent would be available in over 300 databases, up to 2,000 publications, on video and CD's and can be accessed through more than 10,000 service organizations worldwide.

Remember how long it took the technology of papermaking, the Chinese had over 1,000 years to reach the Europeans. Today, once that technology becomes public, it takes an average of eleven months to reach publication, two months after that to gain general database residence and less than three minutes to go around the world via telecommunication satellite to a computer. That means if that same technology was transferred today, paper making in China, a publicly held knowledge, could travel to Europe in less time than it takes to boil an egg.

Man is still the slowest piece of the time link. A corporation that generates a new technology will take years to achieve a patent or publish information. When that information becomes public, to be useful to a researcher, it must be located, sorted, evaluated, tested, and executed. This is a time consuming and expensive process.

In the 1990's, the ability to access relevant information, make the correct evaluation of that information, and execute upon it in a timely manner was the key to financial success for the corporation. Information overloading is both a blessing and a curse for organizations. Today organizations need flexibility and speed to succeed.

Joint ventures, partnerships, consortiums, research associations, cross-licensing, strategic alliances, contract research, technology transfers, and outside networking are methods companies use to handle information overload in a timely and flexible way.

Today, companies compete in a worldwide arena. Development of new products and technologies are on an ever-increasing time track. Evolution of ideas, technologies and intellect has gone from millions of years at the dawn of man, down to days for contemporary man.

The Practice of Partnering
On October 2, 1991, IBM, Apple, and Motorola joined forces to create two new companies: Taligentä and Kaleidaä. All three companies have enormous Research and Development as well as Marketing budgets and could have pulled off a variety of new products independently. So why did they create new companies? One solid answer is development time; another is access to specialized information, and the last the ability to compete in an expanding marketplace with greater flexibility. Once IBM had only 20 competitors; today it has over 5,000 and that number increases by another 30 each day. A company that gets new ideas to the market place first is usually market shareholder. These three companies know that and they know it comes with a price.

A corporation that embraces the theory "only if its invented here do we sell it," will soon wither and die. The corporation that believes "a piece of a pie is better than none," will grow fat from success.

Today companies are embracing the idea they can partner with other firms and benefit. Time is more and more valuable each day. A McKinsey study reports that on the average, companies lose 33% of after-tax profit when a new product is shipped six months late as compared with losses of 3.5% when they overspend 50% on product development. The time to develop new products has more influence on success than the cost of the development. By sharing development and marketing skills, companies can speed products to market.

Between 1990 and March of 2002, over 400 joint ventures occurred between food companies. In 1991 as firms expanded their need for outside services, 3,000 contract research food labs and consultants were in business in the United States and growing. In the last two years, dozens of associations and consortiums have been formed; all of this in a desire by food companies to compete more effectively.

Partnering, the art of developing outside relationships, can be effective in reducing analytical or research costs, expanding research or marketing capabilities, taking care of overload situations, reducing risk, spreading the cost, penetrating new markets, leveraging assets, increasing market share, expanding product lines, lowering a learning curve, or entering new product categories.

Food companies doing business in the United States are faced with ever growing development time and research expenses. We live under regulatory bodies such as the EPA, FDA, USDA, etc. each demanding greater due diligence for new products and technologies introduced.

If you introduced a new technology into the United States today, your research and development cost would be $10 million to $20 million. The average corporate research budget is 3% to 4% of gross for United States food companies. A Fortune 100 food company dedicates an average of $500,000 to research on an individual new technology. Once you see these numbers, it is easy to understand why partnerships, associations and consortiums make sense for exploring high risk, long-term research into certain areas.

It would seem food companies throughout the world have taken to the dance floor; their dance cards are full and the music playing on. However, like any high school dance, there are still many more wallflowers than dancers. The best looking people are on the floor while the rest stare on, somewhat afraid of being asked or asking for the dance.

If your company is a wallflower in this information age, then you need to take a lesson in dancing and courage, or your firm will find itself by itself. If you learn to dance now, you will master the art and remain competitive.

When thinking about food labs of the future, think about removing the wall and changing your research paradigm. As food, ingredient and equipment processors, we have some fundamental problems to overcome with outside communications. Our companies are slow to adopt new ways of thinking.

Most Western food companies have used some type of contract research at one time or another; an analytical lab perhaps, a process engineer or supplier support. Most companies, however, still rely on the "doing it in house", approach. Licensing is almost a dirty word for Americans and they think only larger companies do joint ventures.

Look at Japanese strategy for new technology. From 1950 to 1978 Japanese companies entered into 32,000 licensing arrangements to acquire foreign technology at an estimated cost of $9 billion. During that same time period, the United Sates spent at least 50 times that much doing original research. Next the Japanese invested huge profits in next generation R&D and have gone on to dominate the markets in areas they originally licensed. The profit came from money saved on original R&D. The Japanese have also taken aggressive advantage of joint ventures. They seek to spread the risk, speed up the process, and increase flexibility. All this from a country whose companies can have 500 year-long-range plans.

Changing Paradigms
There is a fundamental change occurring in our market place: forecasts by their nature are unreliable; technology, customers and markets are in a rapid and radical state of change. As technological developments increase, the ability to predict future products by traditional consumer research is valid for only brief periods. Windows of opportunity are growing smaller.

The emergences of knowledge-based and experience-based marketing system that are team integrated with research and development organizations are here. Future products are likely to be very serendipitous in nature and far less predictable. The ability to determine long-range new products by marketing research in the future will be very small. Companies will predict their product only by simple categories such as: distribution systems, market control or production capabilities. Even these, however, will not be very accurate as more joint ventures occur. Much of our long-term research and development will be based on food companies doing scopes of broader work in hopes of hitting a future trend.

Look to the past and you will see that very few of today's new foods or processing technologies were predicted even ten years before they were invented. The microwave oven or microwave popcorn are excellent examples of this. Another is OHMIC processing of foods, any variety of new ingredients, or genetically engineered plants or animals.

How then will we predict future products? By joining forces with others, food companies will have the ability to look at more technologies, test more food or ingredient concepts and avoid the old approach to new product development they relied on where the consumer was not where they were going.

The Art of Outside Communication
Let me give you some ways you might look at increasing your outside communications for the long-term benefit of your research group and your company.

• Begin with a plan. What kind of strategic link or partnering will work with your firm? What are your long-term goals? Some basic rules apply to any partnering.
• A partnering strategy should have benefits for both parties or it will be short lived. It should fit a distinct strategy for your firm and your division.
• Develop clear goals and objectives to achieve.
• Have a complete understanding of your group's capabilities and weaknesses.
• A good partner will opposite your strengths and weaknesses.
• Make sure key people in each organization are compatible. A poor personality fit can be disastrous.
• Understand that a partnership of any kind is usually driven by a mutual desire for profits but not always the same total agenda. Because of this, make sure agreements are well thought out before any project is begun.
• Internal communication is imperative for each company. Inside politics can kill a good relationship on the outside.
• Partnerships need higher security, but this is easily handled with a good staff briefing periodically.
• Conduct a routine conflict of interest review. How does this fit your corporate goals? Are there potential conflicts?
• Ethics differ from country to country, be careful to avoid legal issues by addressing "what ifs" with your partner.
• If you are using contract research organizations, suppliers, or consultants as a partner, don't always expect references. A reliable firm will not divulge its clients to anyone. Check credibility by a series of interviews, look at the facilities and expect the first discussion or project quotes on your needs to be at no cost. This step will also tell you if it is cheaper to stay in house or seek a venture partner.
• A reliable consultant or contract research organization will always give you a confidentiality agreement that fits your needs as well as theirs. Expect a quote on your project that is open to adjustment as you define your needs without penalizing you for change. If a quote is unavailable, get a firm hourly rate for staff, rate on facility usage or analytical services. Outside contracts are best handled in phases; never insist on only a full project quote. Expect a contract that outlines each party's responsibilities. Expect frequent communication on the project. Remember a consultant, supplier, or contract research firm is not a 100% guarantee of success. It's only another resource to get you moving ahead in directions you may not have the capabilities for internally.
• If you are joining a consortium, expect and demand confidentiality. You joined for proprietary reasons. Start with a letter of intent, this will allow you to define everyone's needs and expectations in a contract. Keep a team of your own staff involved in the consortium. If your key person in the consortium decides to leave, then valuable experience is lost. Be prepared to execute what you learn before the consortium knowledge becomes public through natural corporation attrition.
• If you are entering into a joint venture, be sure both organizations have agreements in place that spell out future needs before they arise. Choose a partner for a joint venture with care; you may be dancing with them for a long time. On a regular basis, review your joint efforts and upgrade or downgrade the relationship as necessary. A static relationship is often a poor one; it may mean no one is paying attention.
• Licensing agreements are pretty straightforward; price is always negotiable. Be sure your attorney is present.
• We live in a world where attorneys dominate. Trust is still an important aspect of all relationships. The laws, however, don't dwell on trust but on signed agreements. Make sure your legal relationships are in order. Review contract on an annual basis.
• Not all partnerships succeed; by in far many more will fail. Not all new products, services, or ideas make it either; the weak ones are weeded out by the consumer. If a partnership ends, it may not have been a failure but only missed opportunity. Continue dancing with the wallflowers even if you fail; one of them is destined for you and your company's profits.
• Partners are easy to find. Start calling the list of people with which you want to work. You will be surprised at the positive reception you get. All major trade magazines publish lists of companies. Databases of contacts are also available from most publications and Dunn & Bradstreet.
• Get serious now. Hire a marketer, a lawyer, an accountant, and attach those people to your R&D staff. Next, start a business development group and take a logical route to find the right partner by creating a strategic plan.
• Finally, don't rush into a partnership. A good partnering program is built on long-term relationships as well as a firm desire by both parties to work together.

The Future
Let me make a prediction; there is always the chance I will be right. In the not-so-distant future you will see HYPER LINKS occurring, a type of fifth generation hybrid partnership. They will be made up on tens to hundreds of companies for the purpose of researching and marketing new foods and pharmaceuticals around the world. Research, marketing and distribution companies will bid for positions in these HYPER LINKS and will receive a percentage of the profits or losses. A new form of stock will be issued for HYPER LINKS that will change the way we capitalize business. Technology will be so closely tied to speed and flexibility that a consumer buying stock in a HYPER LINK will be looking at his or her investment much like a bookie looks at the horses in a race or the make up of an all star football team.

The media will start forecasting windows of opportunity for new product categories. Governments will more heavily subsidize research. Marketing will be based solely on short-term consumer research data. Food business will breakdown into global, but niche business. Everyone will someday learn to dance with a wallflower.