Collaboration between industry and academia drives innovation forward, but creating a successful partnership—and measuring its impact—is more challenging than it might appear. We spoke to Wharton’s David Hsu about his new paper, forthcoming in Management Science, on what makes industry-university collaboration successful, the importance of viewing innovation as a long-term investment, and why you can sometimes learn more from a coffee chat than an academic paper.
Q: Your research focused on industry-university collaboration (IUC) in China. Why China? What can focusing on this particular context teach us about IUC in general?
Chinese firms are required to report product-level outcomes, which is helpful in measuring the impact of industry-university collaborations. In the United States and other countries, corporations are not required to report product revenues, which makes it difficult to measure the monetary impact of collaborations that they may or may not have had with universities.
This level of data observability in the Chinese context allows us to tie IUC to product sales, rather than focusing on outcomes like the number of patents filed or paper published. Of course, those things are nice to observe, but they can be diffuse in terms of what they actually mean. Most patents, for example, don’t have strict monetary value, and neither do academic publications. They enhance our knowledge, but don’t necessarily translate to how well a firm is doing from a product sales standpoint.
China is also an interesting case study of a country that has, in the span of about one generation, gone from being somewhat underdeveloped to being quite “frontier” in some areas. Just to illustrate this, 30 or 40 years ago, the average life expectancy in China was maybe 55 or 60. Now it’s 80, just like it is here in the United States. That’s just one example of the enormous ascent that the economy has experienced in a few short decades. Studying China helps us investigate how rapidly developing economies can evolve, which we hope will be the trajectory for many other developing countries.
Q: This paper highlights the crucial role of relationship-building and personal interaction between firms and universities in creating value. It isolates several key factors that enhance person-to-person interactions, such as geographic proximity. Why is this so important?
In today’s world, thanks to the Internet, everything is codified. You can instantly download and read academic papers and patents—all that information is available to us. But for firms to fully benefit from university knowledge spillover, it requires more than simply having access to information.
Let’s take geographic proximity as an example. It’s unlikely that you’ll be able to read an academic paper and instantly understand how to use that knowledge to benefit your operations as a business. But geographically proximate university and industry partners are more likely to have the conversations needed to successfully translate the research in follow-up meetings, lunches, coffees, and meetings with grad students: this is where the technology works well, this is where it’s applicable, this is where it’s less applicable. Understanding these contingencies or boundary conditions helps us better understand how to utilize this knowledge.
Recall that the type of research being done in universities is much more basic compared to what’s happening inside corporations. Corporations, rightfully so, try to take an engineering mindset: how do we develop this product with these attributes at this price point? University researchers don’t have the constraints of having customers or having to deliver a product at a certain time or price point. They’re free to work on foundational questions, which sometimes end up becoming very important. Probably the well-known example of this is the Nobel Prize that Penn researchers got last year for their work on mRNA technology. They had been studying that 20 years ago without an application in mind. During the pandemic, companies like Moderna and BioNTech were able to use that technology right when we needed it, and society benefited.
We need to understand that what university researchers work on is not the same as what corporate researchers work on, but there is a complementarity between the areas where university researchers excel and the areas where corporate researchers and entities excel.
Q: What practical steps can companies take to leverage this “complementarity” and work more effectively with universities?
Now, that’s not so easy. That’s one of the main points of the paper. To work with universities is an investment. Yes, there are gains to working with university research, but those gains are not available to everyone. You need to put in time, effort, energy, and treat it like a medium- to long-term investment. Sometimes that relationship will facilitate knowledge-sharing that directly translates into a product. Other times it might be useful for recruiting personnel or facilitating a technology transfer. There are different modalities through which we can think about that interface.
Imagine your car breaks down, and you know absolutely nothing about how a car works. You go to a mechanic, and the mechanic says, “This is totally unsalvageable, and I have to rebuild the whole engine.” Because you know nothing about cars, you’re beholden to the information that you’re given. But if you knew a little bit about cars—not enough to fix the engine yourself, but a little bit—that benefits you, because you know what questions to ask.
Likewise, a corporate manager doesn’t need to understand 100% percent of the research being done inside universities, but if they have somewhat of an understanding, that is helpful. It will benefit them in terms of project selection, identifying attainable milestones, and overall awareness of the frontiers of the current research.
Yes, it requires some investment on your part. Just like, when fixing your car, the no-effort solution is, “Hey, here are my keys. Tell me how big of a check to write and I’ll do it.” Developing some basic understanding allows you to ask intelligent questions that make you more of an informed consumer.
Q: What role can intermediaries like the Mack Institute play in facilitating successful industry-university collaboration?
When managers think about how to interact with university researchers, they need to understand that the culture, environment, language, and incentives are very different between universities and the corporate world. It’s messy in the middle because it’s like trying to translate between different worlds, each using its own language. You may not understand 100% of what either party is saying, but you try to grasp the main takeaways. University researchers experience this too. They are used to conversing with others who speak their specialized language and might not realize that when they use this language with a generalist, it might as well be Latin or Chinese.
As a society, if we want to benefit from both sides, we need to distill things down so that even if the counterparties don’t understand everything, they get the general idea. Organizations like Mack can help bridge this gap by facilitating conversations and finding common ground for mutual benefit. Academics need to know what interests people in the industry, and industry professionals need to keep up with the latest developments in academia.
Take, for example, the technological area of AI. People in academia can develop algorithms and computational models, but they often lack the data to validate them. On the other hand, industry professionals have the data but might not have the best models. Exchanging this information can benefit both parties. This exchange is challenging and not natural for either side, but it can be highly beneficial.
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David Hsu’s article, “Industry-University Collaboration and Commercializing Chinese Corporate Innovation,” was written with co-authors Po-Hsuan Hsu, Kaiguo Zhou, and Tong Zhou, and will be published in a forthcoming issue of Management Science. Read a copy here.