The story of Defence Technology Enterprises (DTE) goes right to the heart of this issue. DTE was set up in 1985 to enhance the transfer of innovations out of the Ministry of Defence's research establishments. The initial shareholders were seven financial institutions and the British Technology Group (BTG), the state-owned descendant of the National Research and Development Corporation (NRDC), which had been responsible for the transfer of innovations from the state sector to industry since 1949.
DTE was set up because it was felt that BTG was not sufficiently exploiting innovations generated within the establishments. It was to take a much more active approach by placing 'ferrets' inside the four main establishments: Royal Signals and Radar, Royal Aerospace, Admiralty Research and Royal Armament Research and Development. About another 50 MoD establishments (including Atomic Weapons at Aldermaston) were covered on a visiting basis.
These 'ferrets' were to compile a database of suitable innovations that would be made available to DTE associate members. DTE would also act as a 'marriage-broker' between associates and the relevant MoD specialists, and handle patent and licensing issues. An impressive technology database was rapidly compiled by sorting through existing MoD patents for suitable ideas.
Although some innovations were licensed by DTE, the return from royalties remained low. In the summer of 1989, the shareholders lost faith and by the end of 1990 DTE had in effect ceased to function (though it remained in existence simply to collect royalties on existing licences that otherwise would revert to the MoD).
DTE's financial failure stands in complete contrast to the highly profitable performance of BTG. But although many innovations developed through military R & D do not have easy civil markets, DTE failed not because of the difficulties of 'spin-off' per se, but because of differences between how DTE and BTG operated.
One problem was that DTE had conflicting masters: its shareholders and the MoD. Too much emphasis was put on the size of DTE's technology database so that the MoD could see what a good job it was doing. 'When DTE was set up, we played the numbers game,' one ferret later admitted. What was overlooked was just how transferable (or not) the innovations were, and whether a potential market actually existed. Much of the initial database came from the search of existing MoD patents, in which case DTE usually knew too little about the innovations and their creators to respond quickly to requests for further information.
The focus on an impressive technology database also meant less money was available for DTE's 'after-sales service'. Identifying an innovation and matching it up to a commercial exploiter is only the first step. The difficult part remains in many cases because rarely, if ever, would an innovation developed in a research establishment be anywhere near being a commercial product. Much of the know-how required to make a technology work would often exist only in the heads of the inventors, and sometimes simply getting it to work at a different site would be a major problem.
While DTE was expending a lot of effort on compiling its database, other innovations were, so to speak, finding their own way to the marketplace. The establishments have long-standing links with industry and universities, which provide effective means of technology transfer, albeit often to an industrial partner that may fail to exploit fully the technology's commercial advantage. Particularly at the Royal Signals and Radar Establishment, where the well-being of 'UK Ltd' has been a major concern, a promising innovation was more likely to be fostered within these tried and trusted means of transfer than handed over to DTE. One of RSRE's staff recalled: 'The only things I've put out to DTE are things I don't believe in.'
Thus many technologies within the establishments could not easily be picked up by DTE because they were already tied into contractual arrangements. According to a former DTE employee: 'The business plan gave the impression that ferrets could just walk into the establishment and pick through a showcase of ideas. It wasn't like that. When you looked at the technology, it was already tied up with contracts.'
DTE's interest lay in interposing itself into these relationships so that it could gain the licence fee and royalties. In essence, much of the best technology in the establishments already had a means of transfer, while little of the rest had a ready market. It was hardly surprising that DTE was unable to attain profitability within five years.
The lack of long-term commitment by DTE shareholders can be contrasted with the state support of NRDC/BTG. NRDC took more than 20 years to become a net earner from royalties on its licensed technologies. DTE's lack of long-term investment meant not only that it could not survive without quick successes, but also that it was not able to put enough resources into the important task of taking innovations out of the establishments and converting them into marketable products.
Identifying gadgets and innovations is a very small part of successful technology transfer. Finding a market for these innovations and adapting them to fit it are what matters. As Peter Hulme said when he became DTE's managing director in 1990: 'We overestimated the ability of British business to cope with new ideas.' This view was echoed by Cyril Hilsum, GEC's research director, when he said that research staff in industry 'already generate many more ideas than we can market'.
Enhancing the utility of MoD technical innovation to British industry thus requires that the central malaise of British underinvestment in technology is also addressed. Despite the fact that British firms are given preferential treatment, roughly 75 per cent of BTG's licences go to overseas companies. For example, its latest large money-
spinner, magnetic resonance imaging, based on work at Aberdeen and Nottingham universities, was offered to UK industry without success and has now been licensed to American, Japanese and other European companies.
Although civil 'spin-off' from defence R & D does not come easy, there is no doubt that it can be enhanced by an organisation such as DTE. However, potential conflicts of interest and the need for a long-term approach suggest that such an organisation needs state backing (making the Government's decision to privatise BTG seem very questionable). Moreover, unless UK companies are prepared to invest more in developing new products out of innovative technology, enhancing spin-off may simply benefit those nations - such as Japan - where different attitudes and government policies prevail.
For a fuller account and references to sources, see 'Defence Technology Enterprises: A Case Study in Technology Transfer', Science and Public Policy (August 1992).