Innovation, Politics & Society, Uncategorized — August 25, 2012 at 12:29 pm

Universities as Explorers, Corporations as Exploiters

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Stephen Machett of the Australian made a fairly cogent commentary on the recent “Smart Manufacturing” report that was released in the last week by the Australian government.  The logic of this “independent” report was that Australia was losing the productivity battle to its near rivals and needed to support manufacturing more.  But just not any old manufacturing, but “Smart” manufacturing.  It was a bit “don’t work harder but work smarter” logic overlaid with a lot of random anecdotes and graphs as evidence and a large dose of 1970s state intervention hidden behind early 21st Century management jargon.  One of the nice things about the Labour Party in Australia is that it knows how to go back to its roots and the report provided that sort of motherhood recommendations that allow an interventionist inclined government fighting desperately to hang onto power the justification to drive truckloads of taxpayer funds up to the front doors of its key voting constituencies.  The government wholeheartedly backed the report and its rigour in much the same way that holistic herbal remedy manufacturers justify their products by saying they were “scientifically tested”.  The inadequate logic and evidence against the thinking behind the “Smart Manufacturing” Report was articulated very clearly by my colleague, Steven Kirchner, long before the report was ever released (see his comments on why backing manufacturing is not smart).

Machett’s commentary focused more on the logic that universities needed to do more “practical” research.  Such pronouncements are quite intriguing since they have a “when did you stop beating your wife character?”  What is the alternative?  I am waiting for a government report to say we should do LESS practical research and that we should support DUMB manufacturing.

My commentary on this is attached below as it argues that those proposing such incentives have no real clue as to why it is important to keep university and corporate research separate.

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The reality is that we have heard all of this [the need for universities to do more “relevant” research] before and the end result is that it will go nowhere.  Look at it very simply.  Corporate innovation is dominantly about exploiting knowledge (or more clearly capitalizing knowledge financially).  University innovation is dominantly about creating knowledge without direct concerns as to its “marketability”.  The economics of these two activities are very different and the evidence is that one cannot really do both well.  In the jargon, the trade-off between exploitation and exploration is what is known as “ambidexterity”.  What we know of this (and there has been a lot of work) is that organizations cannot straddle the middle.  Corporations are, at best, 30% explore and 70% exploit (because doing otherwise does not generate cash flows for dividends).  Universities are the reverse (70% explore and 30% exploit).  Over time corporations will attempt to increase their “exploration” marginally when they realize that the pool of knowledge they can exploit is dwindling.

In addition, the time frames and economics of this are very different.  Exploration is more of a venture capital game where lots of failures have to be accepted to achieve the outcomes.  Exploitation is more a corporate finance game where the NPV of each project is clear and positive.  The problem with the logic of the Manufacturing Task Force and what would be driven by government policy aimed at more “practical” outcomes is it will crowd out the natural exploratory nature of university endeavours and replace them with easily exploitable knowledge.  This generates a short term gain for a long term loss.

What is really needed is not yet more 1970s style industrial micromanagement but an environment of diversity and contestability.  Our university sector is not market focused not because we as academics do not have such inclinations (I would use myself as an example of those that do and can do the basic science too—but I know of hundreds of others who fit the bill) but that our universities are “Canberra” centric and Canberra believes that the most innovative ideas are those that arise from government policy.  However, government policy—despite all the rhetoric—is all about short term gains that meet narrow accountability standards.  One cannot engage in scientific exploration in this environment.  And without exploration there is no knowledge to exploit.

This brings up a final point.  Whose job is it to exploit the knowledge that scientists generate?  According to the government it is the scientists.  However, this is wrong.  It is the universities’ administrative structures that are responsible for the failure to exploit what their scholars are developing.  Is it my fault that my knowledge is not being used by my university better?  In a corporate world, the core knowledge is exploited downstream in the value chain by other parts of the firm.  In the university environment in Australia the scholar is meant to be developer, producer, line worker, marketer, retailer and provider of after sales service.  Such thinking shows a lack of understanding of just how knowledge is created and exploited.

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