The Path for Federal R&D Is Changing

How agencies can tap industry research budgets.

“Industry now accounts for the vast majority of national R&D, which has been growing for decades.” That’s a quote from a January 2015 American Association for the Advancement of Science report on national research and development. While there was a brief uptick with the American Recovery Act, federal research and development has been on a steady downward trend as a portion of gross domestic product for many decades even as commercial R&D has increased. According the AAAS, industry R&D has grown to just under 2 percent of GDP while federal R&D has fallen below 1 percent.

As a result, the top-down approach to federal R&D is changing. Except in very select areas, the federal government doesn’t have the resources to fully fund the research it needs. The key to federal research is to tap into and influence commercial innovation and R&D budgets. For instance, In-Q-Tel is a nonprofit investment vehicle created by the intelligence community to tap innovation in Silicon Valley and beyond by offering equity investment. It funded Palantir (among many other companies) which has become one of the few startups valued at over $1 billion, commonly referred to as a unicorn. The government only spends a small amount as seed money and has access to Palantir’s innovation and leverages the millions it raises from private sources.

Similarly, the Homeland Security Department’s Science and Technology Directorate works with the Center for Innovative Technology accelerator to mentor and fund companies with technologies that could benefit first responders through its EMERGE program. Prize competitions are another example of government seeking to tap industry and other nongovernmental resources to create innovation for their stakeholders and customers. Many of these efforts can be done with very little investment and leverage or encourage additional private investment to benefit all.

Government leaders seeking to change their approach to R&D can do a few things to help build industry interest and make their efforts more successful.

  • Make the requirements and needs clear and realistic. Government has the convening power to bring together stakeholder communities in ways that industry doesn’t. It needs to help those communities define their need in a realistic way that industry can respond to.
  • Think through the business case. In the end, industry needs to make a profit in order to justify the investment. The more clear and compelling the business case is upfront, the more interest you’ll see from industry for prize competitions, grants, or contracts.
  • Search for standards. The goal of government is to spread innovation and benefit to the widest set of stakeholders possible. Standards help to focus industry’s efforts, reduce the cost of implementation, and allow beneficiaries to compare similar products and solutions.

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