We’ve had a few interesting discussions during the classes at Kellogg. A couple of interesting and provocative discussions from last week included the following:

Generating return on academic investments and scientific research. What we were taught was one way of valuing commercial projects by finding what their NPV (net present value) is. The problem with applying this approach to scientific research projects, is that on the face of it, the majority of basic research is financially a one way street. You get grants, you spend the grant on materials and paying students/post-docs to do the work and then you publish. Publishing doesn’t generate income. It might help you get future grants but you can’t put that easily into an NPV calculation. If you do more applied science, you can probably patent some of your inventions and try to license them out to recoup costs (which is basically what Tech Transfer Offices do). However, for a lot of scientific research this isn’t possible. So if you can’t put a value on your project’s worth, should you still do it? Absolutely, yes – if, it is well thought out. While I do believe that scientists could do more to apply risk management and project management principles to the process of conducting scientific research. Applying numerical valuation principles is clearly in conflict with the nature of academic research.

Fundamental scientific research which may not have a NPV value and whose worth cannot be foreseen is necessary, since this research can drive innovation. The beauty of the university system is that scientists and engineers have the freedom to follow far-out ideas (although some may argue that this is becoming increasingly impossible with the squeeze on funding and tenure opportunities). Companies, on the other hand, are driven by profit generation, which means that they won’t take on projects with a negative NPV (i.e. basic science research). What they can do is build on the ideas generated at universities and turn them into tangible and financially viable projects. Some great examples of this co-dependency and its effect on innovation are described in Nathan Rosenberg’s book (check out the recommended reading tab).

Another interesting point made the other day was: “Today, there is no shortage of capital in the world, merely a shortage of good ideas that deserve that capital” – Prof. Effi Benmelech (paraphrased). To some extent I would agree with that comment. Much of the technological advances in the world in the last few decades have been incremental. From the point of view of scientific research funding, I think I would actually disagree and suggest instead that perhaps the distribution of capital and the metrics for assessing good ideas is skewed, rather than there being a lack of good ideas.