The Advanced Technology Program: Assessing Outcomes (2001)

Enhanced R&D Efficiency in an ATP-funded Joint Venture

Albert N. Link

University of North Carolina at Greensboro

DECLINE IN U.S. SHARE OF GLOBAL PWB MARKET

The United States dominated the world PWB market in the early 1980s, as shown by Table 1, but lost that dominance by the late 1980s. While no single event explains the decline in U.S. market share, according to one company spokes-person a very important factor has been “budget cut backs for R&D by original equipment manufacturers (OEMs) because owners demanded higher short-term profits,” which led to deterioration of the industry's technology base.

In 1991, the Council on Competitiveness issued a report on American technological leadership. ¹ Motivated by evidence that technology has been the driving force for economic growth throughout American history, the report documented that as a result of intense international competition, America's technological leadership had eroded. In the report, U.S. technologies were characterized in one of four ways: Strong: meaning that U.S. industry is in a leading world position and is not in danger of losing that lead over the next five years. Competitive: meaning that U.S. industry is leading, but this position is not likely to be sustained over the next five years. Weak: meaning that U.S. industry is behind or likely to fall behind over the next five years. Losing Badly or Lost: meaning that U.S. industry is no longer a factor or is unlikely to have a presence in the world market over the next five years. The 1991 Council on Competitiveness report characterized the U.S. PWB industry as “Losing Badly or Lost.”

ATP AWARD TO THE PWB JOINT VENTURE

In 1990-91, the Advanced Technology Program conducted its first competition. A joint venture proposal, by the National Center for Manufacturing Science (NCMS), proposes to research and develop a suite of advanced PWB technologies that would enable U.S. wire board suppliers to meet the needs of customers, making it unnecessary for them to rely on foreign suppliers. The ATP selection board found that the proposed project met technical and economic criteria, and it announced the PWB joint venture in the first group of 11 ATP award winners.

The project ran through April 1996. ATP contributions amounted to $12.87 million over the five-year (statutory limit) funding period. Industry matching contributions amounted to $13.78 million. During the project, the U.S. Department of Energy added an additional $5.2 million, bringing total project research costs to $31.85 million.

ROLES AND RELATIONSHIPS AMONG MEMBERS OF THE JOINT VENTURE

Participants in the PWB Joint Venture, in addition to NCMS, plus changes over the course of the project are summarized in Table 2. Although Digital Equipment (DEC) was one of the companies involved in the original NCMS proposal to ATP, it participated in the project for only 18 months. Its decision to withdraw was, according to NCMS, due strictly to financial conditions at the corporation at that time. DEC's financial condition did not improve, ultimately leading to the closing and sale of its PWB facilities.

After DEC dropped out, three other companies joined the joint venture to assume its research responsibilities. These were AlliedSignal in 1993, Hughes Electronics in 1994, and IBM also in 1994. In addition, Sandia National Laboratories became involved in the joint venture during 1992, as anticipated in the proposal for funding. Sandia subsequently obtained an additional $5.2 million from the Department of Energy and applied it towards the research effort of the joint venture.

² A. N. Link, Advanced Technology Program: Economic Study of the Printed Wiring Board Joint Venture After Two Years, report prepared for the Advanced Technology Program, April 1993; and A. N. Link, Advanced Technology Program Case Study: Early Stage Impacts of the Printed Wiring Board Joint Venture, Assessed at Project End, NIST GCR 97-722, November 1997.

A Horizontal Collaboration

The PWB research joint venture can be described in economic terminology as a horizontal collaborative research arrangement. Economic theory and empirical studies suggest that research efficiencies will be realized when horizontally related companies form a joint venture, due to the reduction of duplicative research and the sharing of research results. ³ This conclusion is supported in this case study's quantitative estimates of cost savings.

Less Competition, More Cooperation

Characteristics of the joint venture member companies are summarized in Table 3. An important point to note is that AT&T, Hughes, IBM, and Texas Instruments, although in the same broadly defined industry, are not head-to-head competitors. These companies were four of the leading domestic captive producers of PWBs when the project began; they were also members of NCMS, the joint venture administrator. However, AT&T and IBM were not direct competitors in PWBs because their PWBs were produced for internal use in different applications. AT&T produced PWBs primarily for telecommunications applications while IBM's application areas ranged from laptop to mainframe computers. Similarly, Hughes and Texas Instruments produced for different niche markets (although they did compete with each other in some Department of Defense areas). Hamilton Standard, no longer a producer, purchased boards to use in its production of engines and flight control electronics. AT&T and Texas Instruments were not involved in these latter two product areas. In contrast to all of the other companies, AlliedSignal was a major supplier of materials (e.g., glass cloth, laminates, resins, copper foil) to the PWB industry. In addition, it was a small-scale captive producer of multilayered PWBs. The absence of an intensely competitive situation among the joint-venture participants is noteworthy because it is likely more conducive to their sharing results.

³ A. N. Link and Laura L. Bauer, Cooperative Research in U.S. Manufacturing: Assessing Policy Initiatives and Corporate Strategies, Lexington, MA: D. C. Heath, 1989.

Organizational Structure of the Joint Venture

NCMS provided the program management, coordination, facilitation, and interface with ATP for the PWB project. NCMS coordinated and interfaced the administrative functions of accounting, contracts, and legal functions related to intellectual property agreements. A Steering Committee, with a senior technical representative from each participating organization, directed and controlled four research teams to ensure that each met the project's technical goals.

Maintaining Accountability

The joint venture was organized to “mimic a company with a chain of command,” according to one member of the Steering Committee. According to this member:

“If it was not organized this way then no one would be accountable. Most of the people had this project built into their performance review. If they failed on the project then they failed at work. The structure also allowed ease of reporting. The information flowed up to the team leader as the focal point for information distribution. The team leader would then report to the Steering Committee made up of senior managers who were paying the bills.”

FOUR FOCUS AREAS

Prior to proposing to ATP's 1990 General Competition, the members of the research joint venture conducted a systems analysis of the PWB manufacturing process and concluded that fundamental generic technology development was needed in four components of the process to develop the capabilities needed for global competitiveness. Accordingly, the joint venture's research activities addressed four areas:

Each component consisted of a combination of research areas which (1) provided significant improvements to existing processes, and (2) explored new technology to develop breakthrough advances in process capabilities.

A multi-company team of researchers was assigned to each of the four research teams. They were involved in 62 separate tasks, and had specific research goals as noted in the following team descriptions:

Materials Team : The majority of PWBs used today is made of epoxy glass combinations. The goal of the Materials Team was to develop a more consistent epoxy glass material with improved properties. The team was also to develop non-reinforced materials that exceeded the performance of epoxy materials at lower costs. Better performance included improved mechanical, thermal, and electronic properties (e.g., higher frequency) to meet improved electrical performance standards.

Surface Finishes Team : Soldering defects that occur during assembly require repair. The goal of the Surface Finishes Team was to develop test methods to use during fabrication to determine the effectiveness of various materials used during the soldering process and to develop alternative surface finishes.

Imaging Team : The goal of the Imaging Team was to investigate and extend the limits of the imaging process to improve conductor yield, resolution, and dimensional uniformity.

Product Team : Originally, this team was known as the chemical processing team. Its goal was to investigate the feasibility of additive copper plating and adhesion of copper to polymer layers. When input from the industry revealed this was not the best research path to take, its focus changed—as did its name. The revised goal of the Product Team was to develop high density interconnect structures.

Given the generic research agenda at the beginning of the project, the organizational structure seemed conceptually appropriate for the successful completion of all research activities. At the close of the project, this continued to be the opinion of the members. As a member of the Steering Committee noted:

“There is better synergy when a management team directs the research rather than one company taking the lead. Members of the Steering Committee vote on

TECHNICAL ACCOMPLISHMENTS

The PWB Research Joint Venture Project accomplished the originally proposed goals, and the project exceeded the original expectations of the members. The joint venture entailed 62 distinct research tasks carried out by the project's four research teams. Technical accomplishments included the following, among many others:

CONCEPTUAL APPROACH TO THE ANALYSIS OF RESEARCH COST SAVINGS, EARLY PRODUCTIVITY GAINS, AND OTHER EFFECTS

In a survey conducted during this study, participants in the joint venture were asked to quantify a number of related metrics comparing the end-of-project technological state to the technological state that would have existed at this time in the absence of ATP's financial support of the venture. Additional questions were also posed to team leaders in an effort to obtain insights about broader effects of the joint venture on the industry as a whole.

In the earlier (1993) study of the joint venture, it was estimated that only 6.5 of the 29 then ongoing tasks in the venture would have been started without the ATP award. The number of research tasks increased to 62 as the companies collaborated to identify and solve new problems. At project's end, team leaders estimated that about half of the 62 projects would not have been started in the absence of ATP funding.

A counter-factual survey also examined the subset of tasks participants thought would have been started even in the absence of ATP support. The survey focused on only one dimension of economic impact, namely cost savings attributable to formation of the joint venture, in terms of only those projects that the member companies would have pursued individually in the absence of the ATP supported joint venture.

MEASURING IMPACT

The methodology used to collect information for this study was defined, in large part, by the members of the joint venture. In particular, members requested that the information collected first be screened by NCMS to ensure anonymity and confidentiality, and only be provided for the study in aggregate form through NCMS. Under this condition, all members of the PWB research joint venture were willing to participate in the study by completing a limited survey instrument and returning it directly to NCMS.

The survey instrument considered these related categories of direct impact:

The survey also considered two broad categories of indirect impact:

Focused survey findings were supplemented with selected open-ended comments offered by respondents; personal discussions with team leaders and company representatives during the April 1996, Steering Committee meeting; and by followup telephone and e-mail discussions with available members.

Direct Impact on Member Companies

Regarding the five categories of direct impacts:

⁴ Link, Advanced Technology Program: Economic Study of the Printed Wiring Board Joint Venture After Two Years, op. cit. ⁵ A. N. Link, David J. Teece, and William F. Finan, “Estimating the Benefits from Collaboration: The Case of SEMATECH,” Review of Industrial Organization, 11(5):737-751.

2. Testing Materials and Machine Time Savings

Two years into the project, the members estimated cost savings to be over $2 million from avoiding redundancies in research testing materials and research machine time. At the end of the project, the members estimated the total value of savings in those areas to be over $3.3 million. Relating to research testing materials savings, a member of the Steering Committee noted:

“Before the consortium, there was no central catalogue of all base materials used to produce printed wiring boards. Now, the Materials Component of the PWB research joint venture has produced a complete database of PWB materials that includes data on composition, qualifications, properties, and processing information for the domestic rigid and microwave materials. The information in this catalogue has saved research testing materials and will make it easier for designers and fabricators to select materials without having to search through supplier literature.”

This member went on to note:

“Considerable problems were encountered in creating the database because:

3. Other Research Cost Savings

In the 1993 study, members were asked a catchall question relating to all other research cost savings associated with the research areas that would have been started in the absence of ATP funds, excluding labor and research testing material and machine time. In 1993, these other cost savings totaled $1.5 million. In the 1996 survey, the same catchall question was asked, and members' responses gave cost savings of over $7.5 million.

Therefore, quantifiable research cost savings attributable to ATP funds and the formation of the joint venture were $35.5 million at the end of the project—$24.7 million in work years saved, $3.3 million in testing material and machine time saved, and $7.5 million in other research cost savings. In other words, members of the joint venture reported that they would have spent collectively an additional $35.5 million in research costs to complete the identified subset of research tasks that they would have conducted in the absence of the ATP-funded joint venture.

4. Cycle-Time Efficiencies: Shortened Time to Put into Practice New Procedures and Processes

Two years into the project, members estimated that about 30 percent of the tasks enjoyed shortened time to put new procedures and processes into research practice, and the average time saved per research task was nearly 13 months. At the end of the project, members estimated that shortened time to practice was realized in about 80 percent of the research tasks that would have been started in the absence of ATP funds, and the average time saved per task was 11 months. Members did not quantify the research cost savings or potential revenue gains associated with shortened time to practice.

As an example, a member of the Steering Committee noted:

“The use of the AT&T image analysis tool and the improvements made in the tool during the contract has made a significant reduction in the evaluation time needed for photoresist process capability studies. This reduction has occurred due to the improved test methodology and the significant improvements in the speed and accuracy now available in making photoresist analysis.”

5. Productivity Increases in Production

Two years into the project, members of the Steering Committee estimated that participants had realized productivity gains in production which could be attributed to research developments in about 20 percent of the 29 research areas. The then-to-date production cost savings totaled about $1 million.

At the end of the project, the members estimated they were realizing productivity gains in production which could be traced to research developments in about 40 percent of the 62 research areas. The teams estimated the value of these productivity gains in production, to date, to be just over $5 million. And, given that the PWB research joint venture's research had just completed, future productivity gains will, in the opinion of some team leaders, increase exponentially.

One example of productivity improvements in production relates to switching from two sheets of thin B-stage laminate to one sheet of thicker B-stage laminate. One committee member noted:

“For a business like ours, the cost saving potential was enormous. The problem was that reducing the ply count in a board carried risk: drill wander, reliability, thickness control, dimensional stability, and supply. The consortium provided the resources to attack and solve each of these problems. The result was that we were able to quickly convert all production to thicker B-stage, saving at least $3 million per year. Without the consortium this conversion might not have occurred at all.”

A second committee member's example relates to dimensional stability:

“The inability to accurately predict inner layer shrinkage leads to a serious compromise with interconnection density and often leads to costly scrap. At the be

Indirect Impact on Member Companies and the PWB Industry

The study identified two categories of indirect impact already extending beyond the member companies to the entire industry:

Descriptive information was collected to illustrate the breadth of the impacts, but no effort was made to estimate aggregate dollar value or to define them as tasks that would or would not have been begun in the absence of ATP funding. This approach was based on advice of the Steering Committee, which felt that dollar valuations at this time would be extremely speculative.

2. International Competitiveness Issues

The health of the domestic PWB industry is fundamental to these companies' ability to be more competitive in the world market. At a recent meeting, NCMS gave its collaborative project excellence award to the ATP-sponsored PWB project. At that meeting the NCMS president credited the project with saving the U.S. PWB industry and its 200,000 jobs.

The members of the PWB Research Joint Venture perceived that, as a result of their involvement in the joint venture, their companies have become more

3.Other Company Impacts

Members of the Steering Committee were asked to complete the following statement: “My company has benefited from its involvement in the PWB joint venture in such nontechnical ways as . . . ”

Representative responses were:

Finally, the members considered the goals of the ATP as stated in its enabling legislation. Albeit qualitative information, the members of the Steering Committee generally agreed that the ATP had indeed fulfilled its stated goals in the case of the PWB Research Joint Venture.

SUMMARY AND CONCLUSION

ATP's funding of the PWB Research Joint Venture Project has had a number of direct and indirect economic impacts. Of the direct impacts, the largest at the time the study was conducted in 1996 was the increase in R&D efficiency. The project achieved at least a 53 percent reduction in overall research costs. The increase in research efficiency in turn led to reduced cycle times for both new project development and new process development. Collectively, the result has meant productivity improvements for member companies and improved competitive positions in the world market. As a result of knowledge dissemination activities by members of the joint venture, capabilities across the entire industry are expanding. These technology advancements are thus improving the competitive outlook and world market share of the U.S. PWB industry.

The survey findings associated with the above direct and indirect economic benefits are summarized in Table 4. In that table, the categories of direct economic impacts to joint-venture participants are separated into those for which dollar values were obtained and those for which dollar values were not obtained, i.e., into “quantified and non-quantified economic impacts.”

The results described in this paper and summarized in Table 4 should be interpreted as only partial and preliminary estimates of project impacts. First, although ATP funding of the joint venture led directly to research cost savings and early production cost savings and quality improvements, the bulk of the production cost savings and performance gains would not be expected to occur until more time has passed after the project's end. Implementation of the new process technologies by joint-venture participants and diffusion of the technologies to other companies in the industry take time. As such, the economic impacts to which values are attached in Table 4 provide a conservative lower-bound estimate of the long-run economic benefits associated with ATP's funding of the joint venture research. The study did not include consideration of market-determined economic benefits deriving from the joint venture research.

⁶ Council on Competitiveness, Critical Technologies Update 1994, Washington, D.C.: 1994.