The CEO and the Technologist

Abstract

Recently, the Industrial Research Institute participated in a study of the attitudes of top management toward their R&D heads (1). Surprising to many, it appeared from this survey that a large number of CEOs felt that their R&D managers often failed to understand their problems. Frequently, they stated, projects were brought to management for funding that did not fit the corporation's strategy or resources. This can be a serious situation for the corporation, and needs to be clarified for the research and development community as much as for the CEOs. Top managements are besieged by advice and information from many sources: business school publications, newspapers, financial newsletters, business and financial organization meetings and discussions, consulting firm publications and reports, academic publications and information, government briefings and interactions, and so forth. Perhaps some technical literature and advice also reaches them, despite the demands on their time. But do the R&D communities receive similar exposure to the broader problems their managements face, or are they so preoccupied with the accelerating pace of science and technology that it is all they can do to keep up with their own fields of expertise? The question is a critical one, because R&D is not an intrinsically necessary activity. It is justified only if it helps to further the specific needs of the organization of which it is a part. From my experience, those two worlds and perspectives are often at loggerheads. Even when the CEO is an experienced technologist, which is often the case, he or she must of necessity become increasingly immersed in the kind of business and financial problems reflected in the above categorization. Perhaps, then, because I have been a technologist and a CEO, I can shed some light on both viewpoints. I will briefly cite my own experiences, because I started out as a technologist, and for years technology drove our business. To be sure, we had to solve many business problems, but the 1950s and '60s constituted an era of rapid world and industry growth, and superior technology was indeed in demand. However, as the external enviromnent changed in the 1970s, I was confronted with a new set of problems on the financial side (in which we were not expert) which converted me more fully into a CEO for these times. In an era of capital constraints worldwide, the lessons that I learned then and thereafter as an economist at Stanford may be helpful to the technical community today in understanding some of the key problems posed to technology-based American companies and their managements. A TRUE STORY As I have described elsewhere, I co-founded Scientific Design Co. Inc. (later Halcon International and Halcon SD Group) in 1946 (2). During our first 20 years, there was no outside funding available. We grew from within, and technology was managed by us for strategic growth. The period 1946-1966 could be described as the golden years of America's postwar dominance of the international economy. This led us to form a joint venture (Oxirane) with Atlantic Richfield Co. in 1966 to exploit a major new technology we had developed for the manufacture of propylene oxide (3). Accordingly, we required a large source of external funds to maintain the rapid growth that our strategy dictated--new technology must be swiftly exploited commercially on as international a scale as possible, so as to gain and hold market share and descend the learning curve of the technology before competitors can make serious inroads. In a previous article I described the innovative financing arrangement that was worked out by Arco and ourselves to permit a public and private company to work effectively together (4). This was our introduction to the real world of finance. As a result, the joint venture grew rapidly from 1969-1979, to revenues of $1 billion per year from five plants in the United States, one in the Netherlands, one in Spain, and one in Japan. …