U.S. Technology : As a Giant Dozes, Ideas Tiptoe Away

When Bruce R. Scott, a professor at the Harvard Business School, tells visiting American executives about automated Japanese factories that operate virtually problem-free without a worker in sight, he draws blank stares. None of the Americans has a comparable plant, Scott says, and none has plans to build one.

“They say to themselves: ‘We’ve all heard about the problem, but we didn’t appreciate how big a gap had been opened up,’ ” Scott explained.

“It’s a little like you’ve been running the mile for a long time, it takes you 4 1/2 minutes and that’s terrific,” he said. “But nobody ever put you in a race with a guy who ran it 3.8.”

Yet when F. Stan Settles, president of the Institute of Industrial Engineers, visited East Asia a few weeks ago, a Taiwanese executive told him that America’s technological competitors were starting to grow nervous about stirrings they detected in the world’s biggest economic power.

‘Sleeping Giant’

“We see again the awakening of the sleeping giant,” the Taiwanese said.

America, indeed, remains the world’s technological giant. According to 282 business executives in the United States, Japan and six other Pacific economies surveyed by The Times and the Booz-Allen & Hamilton management consulting firm, American companies continue to rank as the dominant forces in most of the critical spheres of technological innovation--from artificial intelligence to high-performance materials, supercomputers to superconductivity.

Seen as Lumbering Giant

But the United States is a lumbering giant. The nation has lost world leadership to Japan in other important fields, including robotics and microelectronics. Perhaps more important, the survey says, muscle-bound American companies seem to lack a wholehearted commitment to developing improved technology and an adeptness at exploiting innovation--qualities they may increasingly need to maintain leadership in an era of unprecedented worldwide competition in ideas and their commercialization.

Fixated on quick research payoffs, blind to the ability of technology to open new markets, inattentive to the contributions scientists and engineers can make to corporate success, many American managers--especially in the big companies that were the survey’s focus--have lost touch with the innovative power that drove their firms to technological leadership.

In the name of avoiding risk, the survey results suggest, U.S. firms run the danger of losing command of the high-technology marketplace to more aggressive competitors.

“We’re a muscular player with good technology, with the biggest market in the world that other people want to enter, with the ability to behave like leaders, and we’re sort of trapped in our own short-term mentality and the view that we’ll lose if we try to compete,” said William P. Sommers, senior vice president of Booz-Allen.

Routine corporate procedures help trap U.S. executives in short-term, risk-dodging practices.

According to the survey, American executives--despite years of warnings from business gurus about the need to adopt the longer perspective of Japanese corporate decision-makers--remain stubbornly short-term in their perspective.

The performance of 59% of U.S. chief executives is measured once a year or more often, compared to just 2% of Japan’s top managers, the survey found. Moreover, 45% of American managers said they ought to be evaluated that frequently. None of the Japanese executives thought so.

Familiar American firms--IBM, Cray Research, Xerox, Microsoft, Hewlett-Packard, AT&T;, Du Pont and others--won the surveyed executives’ plaudits as technological trend setters. But overall, the American executives--their responses colored, perhaps, by the painful corporate retrenchments of the last eight years--emerge from the survey as a group painfully uneasy about taking risks:

--Developing new technology does not rank as a business priority for American executives or their East Asian counterparts. But it is the Japanese managers’ second-highest goal, behind increased profitability.

--The American firms’ leading objective in innovation is the development of new products for their existing markets. The Japanese are more ambitious, aiming to create new products for new markets.

--Four out of 10 U.S. companies extract their profits from investments in technology within three years. The non-Japanese Asians, whose whole game plan is to grab others’ technology and turn it into commercial gain, move even faster to profit from innovation. But the Japanese are giving projects more time--four, five, six years and more--to become profitable.

The numbers suggest that U.S. companies, to only a slightly lesser extent than those in Hong Kong and the newly industrialized Asian states, are pursuing less risky technological objectives, even as the Japanese gear up for an assault on America’s innovative supremacy.

American managers seek the path of least resistance, said Michel Melkanoff, a UCLA engineering professor who is co-director of the USC-UCLA Manufacturing and Automation Research Center. “If times are good, (it’s) ‘Why change? Don’t rock the boat,’ ” Melkanoff said. “If times are bad, (it’s) ‘I don’t have the money to spend.’ ”

It isn’t that American companies do not think about--or spend for--the future. They spend more heavily, in fact, on research and development than either their Japanese or other Asian rivals, according to the survey. Of the U.S. firms, 22% spent at least 6% of their revenue on research and development, contrasted with 16% of the Japanese firms and just 3% of the other Asian companies.

But the American firms demonstrate a worrisome lack of skill at managing the process of innovation and at achieving the appropriate bang for the buck.

--More than 8 in 10 of the Japanese executives are devotees of technology-planning processes that link research and development with their company’s business plan, but only 50% of the American executives find them effective.

--Three of four Japanese executives consider it valuable to promote engineers and other technical professionals into top management, but barely one in five U.S. executives value that sort of technical proficiency in high management circles.

--The result: More Japanese than American executives say internally developed technology has placed them in new markets, led their firms in new strategic directions, returned a profit or helped reduce costs.

Such findings sound alarms for analysts of the Pacific technological competition.

It is no longer enough, they warn, for Americans to be the world’s greatest inventors of big, new technologies.

If the Japanese--and now even the other Asians--can continue to turn American ideas into products more quickly than can U.S. companies, they say, then America’s dominance in biotechnology, computer-aided design and other fields will slip away as surely as did U.S. leadership in consumer electronics and semiconductors.

‘Yankee Ingenuity’ Needed

And if American companies cannot reclaim “Yankee ingenuity” as their strong suit--an agility in adapting others’ innovations and a mastery of new production processes that increase flexibility and productivity--the United States will continue to invent new concepts only to see them developed into profitable products by its Asian competitors.

“We have to be faster on our feet in transferring basic concepts into products that solve problems that need to be solved,” said Thomas E. Everhart, president of Caltech.

“There’s a new industrial revolution that’s happening,” added D. Bruce Merrifield, assistant secretary of commerce for productivity, technology and innovation. “It’s happening much more quickly than we realize. Obviously it can happen with us or without us.”

According to Merrifield, some American companies are prepared to participate. America’s entrepreneurial society generates firms like Apple Computer and Genentech--companies that start out as little more than an idea in an innovator’s head and turn into driving forces of technology--in a way the Asian nations’ economies cannot.

Meanwhile, Merrifield says, some of the biggest American companies, after stumbling in the technological competition, have regained their footing by rediscovering the attention to process and the long term that the Japanese, especially, have made their hallmarks.

It is in the rallying of such firms as IBM, Eastman Kodak and Xerox, he said, that the Asian competition may be seeing stirrings in the drowsy giant of American industry.

“They went to sleep for a while,” Merrifield said. “But now they’re waking up.”

What’s wrong with so many of the rest of America’s technology-driven corporations?

Some experts insist that there is little amiss that a few years of cheap dollars and lower-cost capital cannot fix. Japanese companies--partly owned by their biggest lenders, able to borrow at lower interest rates, operating in an economy that encourages savings--have every reason to focus more on the long term than does American business, said Richard Drobnick, director of the International Business Education and Research program at USC.

Economic Policy

In Japan, “you can invest more, ask for lower prices, develop market share, because you don’t need to pay it back so quickly,” he said. “That’s no fault of any American company. That’s the fault of American economic policy.”

Whatever the disadvantages American business faces due to macroeconomic issues, however, The Times/Booz-Allen survey underscores the fact that there are decisions American managers are making with the economic hand they have been dealt that contribute to the erosion of the nation’s technological dominance.

Too many U.S. managers, critics say, compound their personal ignorance about technology--the result of careers spent in finance or marketing, not engineering or manufacturing--by showing little interest in promoting the technically able into top management, failing to keep their firms abreast of competitors’ innovations and shying away from alliances that might provide the innovative germ for internal technological development.

Unfamiliarity with even their own company’s high-tech products and processes chills U.S. executives’ willingness to innovate. They follow, not lead. “If the manager of a factory has a choice, he’ll choose the road that will mean minimum risk,” said UCLA’s Melkanoff. “We don’t depend upon new things until they’re well shaken down.”

American companies suffer, meantime, from a “not-invented-here” syndrome that denies them the chance to exploit the advances made by domestic and overseas competitors. While Asian firms send managers and engineers to study in American universities, crowd professional workshops, scour patent filings and negotiate technology transfers, many U.S. companies seem content to wallow in a misplaced faith that American technological supremacy is unshakable.

‘Take for Granted’

“We were so much the world leader for a considerable number of years that people began to take for granted that most of the solutions lay in their own organizations,” said Edwin Mansfield, director of the Center for Economics and Technology at the University of Pennsylvania. “After a while, there are new guys on the block, but the tendency is to not keep track of them as well as you might.”

Still, America’s immense economy is the world’s most dynamic source of technological innovation. In the United States in 1985, companies, government and educational institutions spent an estimated $109.7 billion on research and development--more than Japan and all of Western Europe combined, according to the Organization for Economic Cooperation and Development.

Even in gross terms, though, the research investment gap is closing: Japan’s annual growth rate in research and development spending has exceeded America’s every year since 1973, OECD statistics indicate.

And the American investment--heavily oriented toward the creation of new products and whole new technologies at the expense of developing new ways to make products--finances a strategy that earns American scientists Nobel prizes while companies in Japan, Hong Kong and the other Asian nations win market dominance and profits.

Examples Legendary

The examples are legendary. U.S. companies invented the technology for color television, videocassette recorders, basic semiconductors and robotics, then watched helplessly as they lost the market for each product to the Asian competition.

Critics of U.S. business--backed by an increasing number of academic studies--say the sort of inadequate management of technology highlighted by the Times/Booz-Allen survey is much to blame for the American firms’ competitive problems.

A study last year by Penn’s Mansfield of 125 U.S. and Japanese firms found that executives in both nations agreed the Japanese were much quicker to bring innovative products to market--17% to 23% faster in machine tools, 10% to 16% faster in rubber products, and 6% to 18% faster over all industries. The cost of innovating was 10% to 23% lower in Japan as well.

What is the source of Japan’s competitive advantage? Mansfield found that the Japanese superiority was in adapting technologies acquired from others. The Japanese companies invested heavily in reducing production cost and time, while the American firms focused their investments on market research, preparing distribution channels and otherwise readying markets to accept their new products.

The failure to focus on the how of production--besides contributing to the diminished quality of American products--further handicaps American companies’ ability to incorporate competitors’ technological advances in their own product development.

Stunning Retreat

And it represents a stunning retreat from the resourcefulness that marked American industry before World War II, when the United States--like its Asian competitors today--was considered the world’s great commercializer of new technology.

Creative imitation “is not in our tool kit of skills,” said USC’s Drobnick. “To go out and copy the technologies, you’ve got to speak the language. You’ve got to be at the conferences and at the meetings, not just read the journal articles.”

For now, The Times/Booz-Allen survey suggests that many American executives are not ready to broaden their horizons and abandon their isolating and risk-averse ways, though failure to do so may inch more U.S. industries toward disaster.

But a crisis may be just what America’s technology-driven companies need to shake them from the stupor that threatens the United States’ continued dominance of industrial innovation.

“The thing, if anything, that will move industry more than anything else is fear--mortal fear of dying,” said UCLA’s Melkanoff. “When you’re able to arouse the American sleeping giant, it can become fantastic. But it hasn’t been sufficiently motivated, aroused or properly handled as yet.”

CEO PERFORMANCE Interval of time over which a chief executive’s performance should be measured: U.S. 5 years or more 13% 2 to 4 years 42% 1 year or less 45% Japan 5 years or more 34% 2 to 4 years 66% Asia 5 years or more 18% 2 to 4 years 57% 1 year or less 25% SPENDING FOR R & D Effectiveness of high levels of R & D expenditures: U.S. Marginally effective 14% Somewhat effective 35% Highly effective 12% Effective 34% Ineffective 5% Japan Marginally effective 3% Somewhat effective 22% Highly effective 22% Effective 51% Ineffective 2% Asia Marginally effective 17% Somewhat effective 32% Highly effective 13% Effective 32% Ineffective 6% The Times / Booz-Allen & Hamilton Survey