Changes in the R&D environment are driving research managers to look at different ways to support and grow their organizations.

Paul Livingstone:
Please introduce yourself.

Walter Downing:
I’m Walt Downing. I’m executive vice president at Southwest Research Institute. My function is the chief operating officer.

Livingstone:
How important are collaborations or partnerships with other organizations to the research and development process?

Downing:
They’re very important. Most of our research, of course, is conducted in teams, and it’s multidisciplinary in nature. And usually, when I’m speaking to clients I indicate that in the area of the physical sciences and engineering disciplines, which we primarily focus on, it’s not necessarily economical or even practical to try to cover all necessary disciplines that you might need. So the opportunity to collaborate and bring together various specialties is very useful and a very common way that we conduct R&D at Southwest Research Institute.

Livingstone:
What key technologies introduced in the last 10 years have helped improve the R&D process?

Downing:
When I was looking at this question, the thing that struck me was that I was hard-pressed to name a technology that was truly introduced within the past 10 years. The ones that kept dominating my thoughts were those that had improved to such a point that they became actually practical and ubiquitous in our research activities.

The two that really stuck in my mind, which I think have already been mentioned, are the advances in modeling simulation and rapid prototyping, which greatly accelerate our R&D process in terms of coming to conclusions. It’s already been discussed by several panelists. Another that I would like to reaffirm is the advances in communications and information technology. In our case, I particularly think about Asia, where we do a lot of our collaborations right now. It allows us to more effectively collaborate with research institutions and organizations in Asia.

It’s really interesting. You essentially end up with a 24/7 type operation, because when you’re working, your Asian counterparts are sleeping. You communicate. They come in the next morning, they start working on the communications that you’ve sent them, so it’s more or less around the clock, and again, contributes to that acceleration of the R&D process.

Livingstone:
What’s on your wish list for improving the R&D process at your company? What don’t you have that you would like?

Downing:
We certainly still need improvements in knowledge capture and sharing in a more efficient and effective manner, or maybe ways to have better mentoring. We seem to have a lot of tools in terms of just calculating information, but actually making effective use of them is still difficult, particularly as the amount of information continues to rise. I would certainly like to see that.

And despite the strides in communications that we discussed in the last question, still better advances in communicating this type of information, essentially the corporate knowledge that you have as a result of many years of experience of your senior staff, more effectively to junior staff, would be at the top of my wish list.

Livingstone:
How global is your organization, with regard to industry partners, clients, and suppliers?

Downing:
I would say our staff is quite international. Our organization is more global with respect to its staff than it is to the amount of business that we perform. And we have found that having international staff members does facilitate our ability to do work in other countries, because they have a desire to make those trips that Dave talked about earlier. Approximately 10 percent of our research revenue comes from international clients, not including US subsidiaries of foreign companies. We’ve relied on a variety of approaches to do that. In Europe, we found teaming and service arrangements with organizations in Europe tend to work best for us.

In Japan, we’ve continued to rely on business agents and consultants in- country. And in China, we found that having joint ventures and an actual office in-country is the approach that has best allowed us to advance business there. One of the things we do that stimulates international business is that many of the research contracts that we perform with international clients involve their staff members coming to the US and working with us in our laboratories as part of the technology transfer process. That certainly facilitates our ability to stimulate global business.

We’re also finding a lot of interest among our international clients, particularly those in energy and the automotive sectors, in research consortia. We end up with a lot of international clients with respect to the total membership in the consortia. In general, I think the international business requires a lot more time and effort in terms of developing relationships and continuing to nurture them throughout the process.

And we find the work itself, even though it’s a relatively small amount of volume, is very interesting. I always ask questions of my staff and say why would an international client come to a research organization in San Antonio, Texas for an activity if they could get it in-country? And the answer is, they can’t. And so typically our work is in things they can’t get in-country, so it’s really leading-edge work. It’s very interesting work. And sometimes, because of that, it’s worth the extra effort that it takes to get it.

Livingstone:
How do you deal with the rapidly changing face of intellectual property? How do you find help/partners for development without risking your IP?

Downing:
We’ve had to hire legal experts with specific expertise in dealing with intellectual property rather than the generalists that we traditionally relied on over our 60-year-plus history. People who are adept at working licensing arrangements or other types of IP agreements are absolutely necessary. And in general, we’ve become more comfortable with being flexible in terms of working out those arrangements. What I’ve found is that if scientists and engineers have to work out those arrangements, it becomes an emotional issue.

Instead, you need legal professionals working on it. It takes time and effort to work out the infinite details involved in crafting an agreement that everyone can live with. Again, I have to come back to the consortia issue, because it’s just a necessary thing. It’s not a linear addition in terms of complexity as you add individual participants to a consortium. It’s more exponential, because you get different companies’ legal staffs involved in the issues of intellectual property arising from consortia research. So it’s something we’ve just become more familiar with.

We’ve added specialists to do it, and we’ve acknowledged that it takes time and effort, and it’s a business issue. It’s not a personal thing.

Livingstone:
How do governmental rules and regulations affect your approach to R&D? What restrictions play the biggest role in your field of research, and how have you met the challenge of meeting them?

Downing:
I was initially tempted to spend my time with Mickey to wax more eloquently on the compliance issues, but I couldn’t say it any more effectively than he did. I’ll go just with some specific examples instead, and how we’ve dealt with them. In the compliance area, the example I would talk about is the proliferation and duplication of audits. Like the UDRI and RTI, we also have to do the A133 audit as all nonprofits do. As I understand it, the purpose of that audit was to be a single-source type audit of all your systems that all agencies would recognize.

But the majority of our federal funding is from the Department of Defense. And therefore, the cognizant audit agency for Southwest Research Institute is the Defense Contract Audit Agency. Many of our clients don’t seem to understand the A133 audit. Therefore, we end up having to duplicate a lot of the activities on the A133, which we kind of view as non-value-added, but absolutely required in order to get the contracts. I want to point out that this idea of proliferation of duplication of audits is not just financial, and it’s not just government.

It’s industry as well. We’re seeing more and more proliferation and duplication of audits in safety, quality, environmental, so forth. In other words, different agencies, different companies don’t recognize a single uniform standard for these types of audits. And so you end up with duplication of effort. Nevertheless, you have to do them.

To meet the challenge, we’ve implemented process improvement teams in our business operations, just as we’ve had in our technical operations. We have our different business operations groups meet to discuss best practices and the things they’ve learned to essentially make the best they can of the obligations they’re required to meet. We’ve had actual improvements and reductions in costs and that sort of thing in terms of meeting the challenge. The other thing I want to talk about is cost sharing.

In our case, again, this requires working with industry partners, because I think the concept behind cost sharing is that you ultimately recapture those costs through the commercialization of the product itself. What is required is a bit of a change in mindset among our staff when we are targeting those types of programs. Historically, Southwest Research Institute has been an organization that believes we’re very responsive to client needs, so to speak. We’re solving technical problems that our clients have described for us, through applied research and development.

But in order to effectively participate in cost-sharing activities, you have to take a longer-term view. You have to be aware of the opportunities that might come up farther in advance, because we’ve found we’ve had to take more time in advance in identifying potential industrial partners. We often have to show the additional value-added by strategically investing our internal research and development funds toward those opportunities that we see on the horizon, so that when we go to the client we can indicate not only that they’re leveraging the potential government funding in that area, but they’re also leveraging some of the internal research activity that we’ve undertaken.

So, that’s how we’ve tried to address some of the cost-sharing issues.

Livingstone:
How is your organization involved with carbon sequestration?

Downing:
I’ll deal with the question both internally and externally. In other words, how it affects our internal operations and how it affects our research activities as well. From an internal standpoint, just like the comments that we’ve made with respect to intellectual property, we found that in environmental quality type areas that deal with these issues, we’ve had to bring on additional expertise, such as a specialist in air quality or ground environmental aspects, and increase our staff in those particular areas to address the challenges that are coming up.

We’ve had to further strengthen our environmental quality and safety organizations within the institute, and the participation among our different technical divisions, such that, again, the best practices can be shared and the various reporting and recording issues can be uniformly applied throughout our organization. So that’s the internal view on that question. Externally, issues like this create more opportunities for us. We’re already seeing opportunities to pursue helping clients deal with carbon capture and sequestration, whether it be from a compression or pumping aspect, or even conversion of carbon into other forms that might be stored more easily.

So it’s kind of a good news/bad news story, I guess you could say. And it’s certainly on the horizon.

Livingstone:
Describe the funding environment at your organization. Has funding increased, decreased? What are the prospects for the next year?

Downing:
After several years of significant growth, the research funding at Southwest Research Institute from FY2011 to FY2012 was essentially flat, and we’re projecting that to continue into 2013. I guess you could say that part of the negative side of it would be the completion of several programs for the Army, where we assisted in the destruction of chemical weapons beginning back in the mid to late 1980s. As those arsenals have been destroyed, the need for staff to support that operation has gone away. So that’s sort of a programmatic reduction. But it represented as much as 10 percent of our staff, so that was a significant reduction in federal funding. In the other area, we operate the only FFRDC in the state of Texas. It was created for the Nuclear Regulatory Commission, and its primary project was the Yucca Mountain Repository, for which funding has come to an end as of the last fiscal year. And so, although we’re working in other areas supporting the NRC and recently received a renewal of that contract, the funding for that is at least at a temporary low level. Counteracting those downside trends, we’ve seen a tremendous growth in energy-related research, both conventional and nonconventional.

We benefit from being in Texas for a lot of the growth in the use of natural gas. And not only shale-type natural gas, but also gas from offshore in the Gulf of Mexico. A lot of our research activity is related to that. As a result, we’ve seen a trend back toward our more traditional level of about 40 percent of our funding coming from industry sources. It had slipped downward over recent years with the growth of some of our federal funding, but now it’s coming back to the more traditional norm, which is, generally speaking, a healthy thing for our organization. It has allowed us to grow and last over more than 60 years of operation, where we’ve been able to weather different economic cycles.