NISTIR 6917
Different Timelines for Different Technologies:
Evidence from the Advanced Technology Program

VI. Factors Behind Observed Trends

We use the framework suggested by the industrial innovation life-cycle model in Section III to address the second research question: what factors appear to account for commercial timeline differences among technologies? We assess ATP project and company characteristics by technology area against hypotheses derived from the model.

A. Firm Size

The life-cycle model naturally leads us to expect small or younger firms to be associated with the rapidly changing products and short R&D cycles of emerging industries. We also expect to see larger firms associated with more mature industries, and characterized by longer product cycles and less frequent major product changes.

Company size does indeed seem to affect expectations about the speed of commercialization; the effect also seems to be especially associated with certain technologies. Even though BRS data is closer to establishment or plant-level data than to firm-level data, overall firm characteristics should affect the project. For example, the division of a large firm participating in the ATP project may easily draw on the resources of the whole enterprise, depending on the relative priorities of the project vis a vis the overall business goals of the firm.

Indeed, across all for-profit firms, small companies report a shorter expected period of time to the first project revenues than do larger participants. Forty-eight percent of small-firm applications are expected to generate some revenues by a year after ATP funding ends, compared to 29% of larger-firm applications. (Data are not shown.)

This relationship holds for each technology area. The differences between small and larger firms expecting revenue by a year after ATP are greatest for materials-chemistry (40% of small-firm applications, compared with 17% of larger-firm applications), IT (72% of small-firm applications compared with 52% of larger-firm applications), and manufacturing (41% of small-firm applications compared with 22% of larger-firm applications).

In general, small companies see market entry as more urgent for cash-flow reasons. They may be under pressure to satisfy outside investors, and therefore may be more eager to launch early products whether or not these embody the full technological potential (Powell, 1999). These firms are also more likely to be in the fluid, early stage of the innovation life cycle, where the pace of change and shifts in market dominance are most rapid.

Following Pavitt, firms developing manufacturing technologies may be specialized suppliers to production-intensive large companies, and therefore may operate somewhat more like science-based firms than like larger firms. Another possibility is that they may be more optimistic and have less experience in what it takes to get to market. Or they may seek to provide the disruptive technology that challenges larger firms. In any event, small-firm suppliers to larger firms will face a barrier in overcoming larger-firm reluctance for costly product or process changes, and the ATP joint-venture structure may provide some assistance.

When we examined the window of market opportunity, the firm-size relationship was less clear. Slightly more small firms have a one-year and two-year market window after ATP than do larger companies. However, this overall result held for IT and materials-chemistry technologies but not the other three technology areas. For materials-chemistry, 82% of applications developed by small firms have a market window of at most two years, compared to 54% of materials-chemistry applications of larger firms. For IT, the difference is smaller—95% for small firms versus 85% for larger firms. In the opposite direction, 75% of larger biotechnology firm applications had a market window of at most two years compared with 59% for small biotechnology firm applications.

For manufacturing, 87% of larger-firm applications had a market window of at most two years after ATP compared with 72% of smaller-firm applications. The greater proportion of larger-firm manufacturing applications with shorter market windows is consistent with their use of collaborative R&D to advance and accelerate innovative R&D even within relatively technologically mature industries. The size effect may reflect the joint-venture structure of these manufacturing projects, rather than firm size per se.

B. Project Structure

As discussed earlier, collaborative R&D and research joint ventures are an organizational, technical, and financing strategy with different objectives along the innovation life-cycle. In the first stage of the life cycle, collaboration can leverage resources and capabilities. At more mature stages, partnerships between new and larger or established firms provide a mechanism for a renewed level of innovative activity and product diversification. ATP-funded joint ventures often include a mix of small and larger firms. Many involve a vertical series of players across a supply chain. Some involve a more horizontal structure or are a hybrid of vertical and horizontal characteristics.

Looking at the differences in commercialization timelines for ATP’s single-company with joint-venture projects, 38% of commercial applications developed by joint-venture participants have a market window of just one year after ATP, compared to 31% of those developed by single applicants.

The relative urgency shown by joint ventures holds in each technology area, with a wider margin for some technologies. For example, more IT and electronics applications being developed by joint ventures (57% IT, 44% electronics) report a one-year market window compared with their respective single applicants peers (47% IT, 26% electronics).

R&D collaborations seem to be viewed consistently as a vehicle for acceleration of R&D towards entry to markets with short windows of opportunity. ATP-funded larger firms, in particular, seem to find collaborative R&D the best mechanism for addressing competitive markets. This is particularly important in addressing fast-paced IT and electronics product markets, where technologies change rapidly even into the growth phase of the innovation cycle.

C. Strategy for Commercialization

We refer to commercialization strategy as the selection of a product, process, or service platform for market entry of an ATP-funded technology. Sixty-six percent of all the 1,168 applications reported for this question, across all technologies, involve a specific manufactured product, 24% involve a manufacturing process, and 10% involve delivery of a service. Figure 3 shows the distribution by technology area.

Figure 3. Applications Profile: Manufactured Products, Manufacturing Processes and Services

The product life-cycle model suggests service and low-volume product applications will enter the market quickly, but will have a short product life and will most commonly be associated with early-stage technologies and young businesses and industries. At the other end of the spectrum, process technologies with cost-reduction objectives will have the longest life cycles and typically will be more associated with larger, mature firms. Product-focused applications with an emphasis on performance will be associated with firms in earlier stages of the growth phase, in rapidly-changing markets, seeking opportunities to make their product the standard, dominant design. We examined commercialization strategies of ATP-funded technologies against this framework.

Although service applications constitute only 10% of all applications, they represent 25% of IT applications and 14% of biotechnology applications respectively. One is tempted to associate service applications with small firms. However, given that electronics technologies also involve a large proportion of small firms but almost no service applications, size is not the only factor. Biotechnologies and information technologies are clearly addressing earlier-stage, newer markets, many in the service sectors.

Virtually all applications in electronics, materials-chemistry, and manufacturing are either manufacturing products or manufacturing processes. Manufacturing processes comprise nearly half the applications of manufacturing technologies and over one-third of the applications of electronics and materials-chemistry technologies.

Figure 4 compares the timelines for expected revenues for the different types of commercialization strategies reported for 1,165 applications. Results are consistent with expectations.

Figure 4. When Revenue Is Expected: By Commercialization Strategy

Service applications show the fastest time to market, with revenue expected during ATP for 33% of them and for a cumulative total of 59% a year after ATP.

Manufacturing processes have the slowest time to commercialization, with only 16% expected to generate revenue or reduced production costs by the end of ATP funding and a cumulative total of 35% by a year after ATP funding. For manufacturing technologies, a similar level of activity was expected for product and process applications during the earliest time period; after ATP funding ended, product applications were expected to commercialize more quickly than process applications.

Figure 5 provides additional evidence supporting the relationship between firm size and commercialization strategy. Small firms pursue service applications more frequently than do larger firms. Among service applications, 49% are being developed by small firms, 30% by larger firms, and the remaining 21% (not illustrated) by universities and not-for-profits. Larger firms are pursuing manufacturing process applications more frequently than small firms. Lastly, among all process applications, 66% are being developed by larger firms compared with 29% by small firms. Manufacturing product applications are somewhat more common for small firms.

Figure 5. Commercializatrion Strategy: By Firm Size

At early stages of technology development, customized services and low-volume products provide an early opportunity for relatively low-cost market entry of breakthrough technologies. They generate cash flow and name recognition in the aggressive competition for market share in emerging markets. Further capital investment, completion of the technology goals, and market distribution connections enable higher-volume products and help them reach a broader base of customers. It is important to note that ultimately most ATP technologies are expected to be diffused broadly and to generate their major economic benefits not through customized service relationships but through new products and the implementation of new production processes.

D. Competitive Advantage

This section examines the expected competitive advantage of ATP-funded technologies in terms of improved performance, cost reduction, and other business objectives. The life-cycle model has implications for the nature of the competitive advantage of different ATP-funded technologies. In particular, market competition typically shifts away from introduction of new-to-the-world, radically innovative products, to performance improvements, and then to cost/price considerations over time, as discussed in Section III. To assess whether business objectives of ATP projects are consistent with this component of the life-cycle model, we examined responses to the following question:

What is your major advantage over the competition or other approaches to meeting the customer need?

Response choices:

• Higher performance
  
• Lower cost
  
• Both higher performance and lower cost
  
• New solution
  
• Other
  

Figure 6 shows the results by technology area.

Figure 6. Business Advantage: By Technology Area

Most revealing for our purposes is that information technologies and biotechnologies have the largest percentage of applications considered to be new solutions to a market problem (62% for IT and 44% for biotechnologies). Other technologies (electronics, manufacturing, and materials-chemistry) most frequently target a combination of both cost and performance objectives, although large numbers of electronics and materials-chemistry applications are clearly focused on performance.

These results provide additional evidence that ATP-funded IT and biotechnologies are often in an early, fluid phase of the innovation life cycle, while electronics and materials-chemistry technologies—and even manufacturing technologies—tend to be in the transitional, growth phase, paying considerable attention to both performance and cost objectives. It should be also noted that a large number of applications offered advantages other than those listed in the response choices.

E. Availability of Capital

ATP funding tends to be relatively small compared with what will be needed subsequently to complete the R&D cycle and bring new products to market. The availability of private capital for ATP-project cost share and for the post-ATP product development phase may affect expectations about the timing of commercialization.

To consider whether capital availability might affect the timing of commercialization by technology area, we examined responses to two different questions. First, we asked whether ATP funding itself helped build credibility with investors.⁽¹⁾ Second, we looked at differences in the ability to raise external capital.

To address these issues, we examined responses of the for-profit companies represented in the analyses reported in Section V and Section VI above who also responded to questions in the BRS about financing issues. Since these questions are primarily relevant to for-profit companies and to projects that have been underway for some time, we used information provided by for-profit respondents in Anniversary and Close-out Reports. Of the 588 project participants included in the analyses above, 392 provided information about their experience in raising capital and/or their credibility with investors following their ATP award.

To assess the halo effect with outside investors, we examined the 388 responses to the following question:

How has the ATP award affected your credibility with investors?

Response choices:

• Positively
  
• Negatively
  
• Not at all
  
• Not sure

Most notably, 82% of biotechnology companies reported a positive effect in their relationship with investors, compared with only 34% of manufacturing-technology companies and 36% of materials-chemistry companies. A large percentage of the companies in earlier stages of evolution, particularly biotechnology companies, said they felt they were making progress in building relationships to acquire financial resources.

We assessed the level of activity in raising capital by examining responses of the group of 387 for-profit project participants to the question:

Have you received new EXTERNAL funding for the ATP-funded technology or its commercialization since the ATP award was announced?

Response choices:

• Yes
  
• No
  
• Uncertain

The group was also asked a follow-up question to determine the sources of that new external funding. Participants could choose from this list:

• Owner/angel investors
  
• Stock issue: venture capital
  
• Stock issue: public offering
  
• Long-term debt financing
  
• Federal program: SBIR
  
• Federal program: Other
  
• State or local government
  
• Other
  

We expected to see that companies with technologies in relatively early stages of the innovation life cycle would be more active in the capital markets if they were to achieve their aggressive commercialization timelines for early applications. Results are shown in Table 7.

Among 387 companies responding to the first question, 26% reported receiving some form of external funding since receiving their ATP award. The range was substantial: from 46% for biotechnology participants to only 9% of participants developing manufacturing technologies. A higher percentage of biotechnology participants than any other technology’s participants received every type of funding, except venture capital.

For example, 8% of biotech participants receiving external funding through a public stock issue, compared with 0% of manufacturing and 1% of IT participants. (Note that the cutoff date for the data was September 1999, before the turmoil in the stock markets in 2000–2002).

Over 30% of biotech participants received funding from non-ATP federal sources, compared with 16% of electronics/photonics participants, and 7% of materials-chemistry participants.

Funding from owner/angel sources was somewhat frequent for electronics and IT participants as well as biotech participants (16%, 13%, and 19% respectively), and lowest for manufacturing (1%).

Participants from all technologies received funding from other sources than those listed. Most of these "other" sources involved strategic alliances and joint development agreements with other companies.

Biotechnology companies appear to be particularly successful in raising the capital from a variety of sources needed to achieve their goals for commercialization in some early applications. This ability to raise capital strengthens their reports of "increased credibility with investors". Together, the evidence supports the conclusion that ATP funding is a positive factor in providing firms the name recognition and credibility for building partnerships to help fund applications that require long regulatory periods of clinical testing.

Biotechnology participants were slightly less successful than information technology participants in raising funds from venture capital, which typically insists on short investment recovery periods. Funding from venture capital was most frequent in IT: 14% of IT companies, compared to 12% of biotechnology companies, 9% of electronics companies, and none of the manufacturing companies.

Manufacturing participants were more likely to receive funds from corporate partners than other sources, although external financing was rare for this group. Small companies involved in manufacturing projects likely considered financial relationships with potential customers more useful than financing alone, and many were involved in ATP joint ventures that included potential customers.

Together with the analysis of other factors, the information on financing provides additional evidence supporting the life-cycle framework and enhances the credibility of the expected patterns of commercialization.

____________________
1. See Powell (1999) and Feldman and Kelley (2001) for earlier evidence and a discussion of the halo effect of ATP funding.

Return to Table of Contents or go to VII. Summary of Findings by Technology Area, Conclusion, and Future Work

Date created: March 4, 2003
Last updated: April 12, 2005

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