The market entry, sales, and employment data presented in this paper suggest that ERIP has been able to efficiently produce positive economic impacts. It is likely that the documented successes of ERIP's inventors will be even greater as their projects mature and more current commercialization information is collected. Survey data presented elsewhere indicate that the ERIP financial support, endorsement, encouragement, and commercialization education are viewed by participants as the most important benefits of the program (Brown, Morell, Snell, Soderstrom, and Friggle, 1987). Other federal, state, and local programs might profit substantially from modelling the composition and delivery of their assistance after the Energy-Related Inventions Program

Brown, M. A.

Kerley, C. R.

Morell, J. A.

Snell, S. A.

UNT Digital Library

IMPACT OF THE ENERGY-RELATED INVENTIONS PROGRAM ONTHE NATIONAL ECONOMYb y CONF-8706111 — 3Marilyn A. BrownJonathan A. Morell °E87 011663Sherri A. SnellCharles R. KerleyOak Ridge National Laboratory*BACKGROUND AND PURPOSEIt is now well known that technological innovation is a major de-terminant of productivity growth. New technologies generate jobs, im-prove productivity, and send spin-off effects rippling through the econ-omy. It is generally accepted that most of the nation's economic growthis due to technological innovation.Small businesses have been particularly successful in producingcreative innovations for the marketplace. Firms with less than 1,000employees account for more than one-half of all innovations and almostone-half of the major innovations introduced into the U.S. economy.They produce 2.5 times as many innovations per employee as large firms,and they bring their innovations to the market; much faster (The FuturesGroup, 1984; Gellman Research Associates, 1982).It appears that .antrepreneurship is more readily pursued in smallbusiness, and it is the personal role of the entrepreneur that frequent-ly makes the difference between mere invention and successful innovation(Roberts, 1969). At the same time, smaller firms tend to face uniquebarriers to technological innovation. The inventor and potential•"•This research was sponsored by the Office of Conservation and Re-newable Energy, U.S. Department of Energy. Oak Ridge National Labor-atory is operated by Martin Marietta Energy Systems, Inc. for the U.S.Department of Energy under contract DE-AC05-840R21400.'The submitted manuscript has beenauthored by a contractor of the U.S.Government under contract No. DC-AC05-84OR214O0 Accordingly, tho U SGovernment retains a nonexdu^ve.rovarty-free fcensa tu publish or reproducethe pubisned form of this contrSxition. oraBow others to do so. for U.S Governmentpurposes."OI8TRiBUTWIi OF THIS DOCUMENT IS UNLIMITEDMASTER ^typically have a pressing need for funds to support theactivities that will enable the testing, feasibility studies, marketanalysis, and business plan necessary to gain an adequate assessment inthe market place.This paper discusses the economic impacts of a program designed toprovide targeted federal support for non-nuclear energy-related innova-tion among small businesses and individuals. ERIP is administeredjointly by the U.S. Department of Energy (DOE) and the U.S. Departmentof Commerce/National Bureau of Standards (NBS). The goal of the NBSportion of Che program is:• to evaluate energy-related ideas and inventions, and toselect for further support those technically andeconomically feasible inventions that are likely toincrease energy efficiency.. *•The goal of DOE's efforts is:• to provide the initial funding for these projects, aswell as the guidance necessary to speed inventions towardintroduction in the market place.A secondary goal of DOE is to encourage invention and innovation in theeconomy as a whole.By the end of 1986 more than 23,000 indentions had been submittedto NBS, and nearly 400 of these had been recommended to DCE. The eval-uation data collected on ERIP participants provide a unique opportunityto learn about the activities of an important group of sma?l businessmen- independent inventors whose background gives them considerable techni-cal expertise, but little experience with commercialization processes.If appropriately nurtured, what kind of economic impact can they have?This paper begins with a description of the research design.Attention then turns to an analysis of the rates of market entry of the3ERIP technologies and their spin-offs. Levels of sales and employmentare then assessed. The paper concludes with a discussion of the totaleconomic impacts of ERIP technologies.RESEARCH DESIGNTwo sources of data are central to our assessment of ERIP's eco-nomic impacts: telephone surveys and personally administered case studyinterviews with program participants. Supplemental data for the currentevaluation are drawn from three other sources: prior evaluation ef-forts; data collected by NBS as part of their effort to manage the ERIPapplication review process; and discussions with ERIP Invention Coor-dinators, the DOE staff contacts assigned to oversee the inventors.Information was sought for all of the 307 ERIP applicants recoil- i-mended by NBS to DOE as of June 1985. From this population, informationwas available for only 204 cases. Some cf the inventors were deceasedor could not be found, while others declined to be interviewed.The research design lacks a control group of inventors, making itdifficult to determine the ERIP program's specific economic impacts. Bycomparing the success of participating inventors with statistics fromthe literature, however, some estimates of impacts are offered.MARKET ENTRY OF ERIP INVENTIONSTo analyze the progress and impacts of the ERIP inventions, threedefinitions were developed. Applied inventions are characterized by adirect sale of a unit of product or service, the conclusion of a licens-ing agreement, the conclusion of a joint venture, or the sale or licens-ing of a spin-off technology. A more rigorous definition is used voidentify the more successful of these inventions. In particular,commercialized inventions are those with $50,000 or more in sales forany single ye^r from 1980 through 1984, or cumulative royalties of$5,000 over the same period of rime. Finally, inventions in theproduction/marketing stape refer to those in either limited or fullproduction and marketing, and does not include technologies that havebeen sold only as prototypes.More than one-third (N-70) of the 204 inventions studied here wereapplied by 1985; that is, they had direct sales, a licensing agreement,a joint venture, or a spin-off technology with sales or licensing.Eighteen percent (N=37) of the 204 inventions were commercialized (thatis, they have achieved a minimun level of sales). Fifteen percent(N=31) of the 204 inventions were in production/marketing.These findings are quite impressive when compared with the success^rates of technological innovations as a whole. One study estimatedthat it takes some 58 new product efforts within a firm to yield onesuccessful new product (Booz, Allen and Hamilton, 1968). Myers andSweezy (1976) estimate that only about 10 to 12% of ideas submitted tocorporations for screening will enter the development pipeline. Com-parisons such as these suggest that ERIP has significantly enhanced theeconomic prospects of its participants through the endorsement of itsNBS screening and by its grants, commercialization education, and othersupport.SALESGross sales data were collected from ERIP participants for eachyear from 1980 through 1984. A total of $122M was reported. Anadditional $99M of gross sales (for a total of $221M) was estimated,primarily based on assumptions concerning sales through Licensees.Extrapolations were then used to estimate sales during 1976-79 and 1985-86, years for which sales data were not collected. The results areshown in Figure 1.$*sINMILLIONS350 r3 0 0 •2 5 0 •200150 ••1 CO • -50 ••0•- GROSS SALES OFKRIP INVENTIONS•o- ERIP PROGRAMAPPROPRIATIONS•- ERIP GRANT AWARDS1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986Fig. 1. Cumulative invention sales, program appropriationsand grant awards.Comparing across years, sales grew between 1980 and 1982, and thenleveled off between 1983 and 1984. Also shown in Figure 1 are programappropriations and grant awards, on an annual, cumulative basis, vividlyillustrating the substantial increase of invention sales over grantexpenditures.Figure 2 shows how the cumulative gross sales of $122M was dis-tributed across the 43 commercialized inventions for which data wereavailable. The range of these sales per invention is quite large. Ofparticular note are the three inventions for which sales of $10H toTOTALGROSS SALES1980-1984NUMBER OF INVENTIONSFij;. 2. Distribution of cumulative gross sales forERIP inventions.$32M have been generated. These three inventions comprise 61% of the "$122M gross sales. They involve the following three technologies:o solar space heater;o a solar swimming pool cover; ando a cooling system for buildings.The tremendous success of only three of the ERIP inventions is typicalof the process of technological innovation. Venture capitalists, forinstance, expect that the vast majority of cheir investments will notpay off, but that the small number of big winners compensate for thelarge number of failures.JOBS GENERATEDInterviewees were asked for the number of full- and part-time em-ployees working for theuj on tasks related to their ERIP inventions.The responses to these questions indicate that the inventors (and theirfirms) had a total of 519 employees, 371 full-time and 248 part-time,directly working on their ERIP inventions at the time of thisevaluation. Assuming that part-time workers are employed half-time,this equates to 495 full-time equivalents (FTEs).The 495 FTEs do not include the full- or part time employment ofERIP inventors. Slightly more than one half of the inventors held jobsat the time of this evaluation that involved specific issues related totheir ERIP inventions. Further, the employment reported here relatesonlv to the companies of people who were interviewed in this evaluation.Employment by licensees and entrepreneurs involved in marketing spin-off technologies is not included, except in a few cases where the licen-see or entrepreneur was interviewed.Despite these limitations, our data reveal a significant fact aboutthe relationship between the commercialization of ERIP technologies andjob generation: ERIP technologies support more employees than would beanticipated based on national statistics. Consider those 15 inventionsfor which there were 1984 sales, the commercialization mode was directsales (as opposed to licensing), and employment data are available.The mean sales per FTE is $78K, and the median is $50K. In contrast,the national average for small businesses with some R&D activity is$107,000 (U.S. General Accounting Office, 1984).The superior job-generating potential of ERIP technologies may bedue to any of several factors, including: (1) low wages and/or low pro-fits due to high levels of personal commitment among ERIP inventors andemployees; or (2) high labor intensity of the kinds of technologiessupported by ERIP. whatever the reasoning, our finding is consistentwith other evidence that small businesses contribute more to employmentgrowth than large business (Brookings Institution, 1984) , and that smallbusiness innovation contributes to higher social rates of return whiletaking slightly less relative profit (Romeo and Rapoport, 1984).TOTAL ECONOMIC IMPACTSThe direct employmeuc associated with the marketing of inventionsis the most visible employment impact. However, any discussion of thejob benefits of marketing inventions is incomplete without noting thoseindustrial sectors that supply intermediate inputs and. services to com-mercialize a new product or process. Commercialization stimulates newdemand for energy, materials, equipment, and labor, and generates secon-dary employment benefits. Simult.aneoi.isly, decreases in demand occur insectors that supply inputs to replaced produces or processes. The mag-nitude of the net secondary employment, and income impact depends on the.nature of the invention, the level of acceptance in the market, and thenumber of economic sectors affected by the replacement of one product orprocess for another.Some of the economic adjustments associated with ERI'P products andprocesses are illustrated in Fig. 3. The series of secondary economicadjustments not only include net energy, materials and labor inputs butalso output effects in the form of lower production costs, produce pricechanges, higher wages or profits, and changes in investment and consumerexpenditure. As new products or processes gain wider acceptance, sub-sequent rounds of innovation adoption, resource substitution, and pricechange in the economy converge on a new equilibriuia leval of output andemployment in the economy. Over the long term, the final outcome caninvolve new distributions of income and employment among economicsectors, new income distributions across corporations and consumers,and a net effect on U.S. treasury receipts.ER1P grantand othercommercializationassistancePrivate SectorEnergy,materials,and laborrequiredProductinnovationEnergy,materials,and labordisplaced! Energy,materials,and laborrequiredProcessinnovation±Energy,materials,and labordisplacedQHNL-DWG 87M-11679RNET ECONOMICIMPACTS: Incomeand employmentchangesMarket sharemaintainedor increasedLowerproductioncostsLower productpricesHigher wagesHigher profitsConsumersspend addedincome torother goodsInvestmentincreasesGovernmentSector U. S. TreasuryexpenditureNet effect onU. S. TreasuryU. S. TreasuryreceiptsFig. 3. The economic impact of innovations.10CONCLUSIONSThe market entry, sales, and employment data presented in thispaper-suggest that ERIP has been able to efficiently produce positiveeconomic impacts. It is likely that the documented successes of ERIP'sinventors will be even greater as their projects mature and more currentcommercialization information is collected.Survey data presented elsewhere indicate that the ERIP financialsupport, endorsement, encouragement, and commercialization educationare viewed by participants ar the most important benefits of the program(Brown, Horell, Snell, Soderstrom, and Friggle, 1987). Other federal,state, and local programs might profit substantially from modelling thecomposition and delivery of their assistance after the Energy-RelatedInventions Program.REFERENCESBooz, Allen and Hamilton. 1968. Management of New Products. New York:Booz Allen and Hamilton.Brookings Institution. 1984. High Technology Employment Growth. 1976-1980: Considerations of Firms Size. Washington, D.C.: U. S. NationalScience Foundation.Brown, Marilyn A. , Jonathan A. Morell, Sherri Snell, E. Jonathan Soder-strom, and William Friggle. 1987. Evaluation of the Energy-RelatedInventions Program: An Empirical Analysis of 204 Inventions. Oak Ridge,Tennessee: Oak Ridge National Laboratory, ORNL/CON-225.The Futures Group. 1984. Characterization of Innovations Introduced onthe IT.S. Market in 1982. Washington, D.C.: U.S. Small Business Adminis-tration, Office of Advocacy, March, NTIS #PB84 212067.Gellman Research Associates, Inc. 1982. The Relationship Between In-dustrial Concentration. Firm Size, and Technological Innovation. Wash-ington, D.C.: U.S. Small Business Administration, Office of Advocacy,May, NTIS #PB82 226119.Myers, Sumner and Sweezy, E. E. 1976. Why Innovations Falter and Fail:A Study of 200 Cases. (Denver Research Institute, University ofDenver), Report R 75-04, NTIS.11Roberts, Edward B. 1969. "Entrepreneurship and Technology," Factors inthe Transfer of Technology. William H. Gruber and Donald G. Marquis,eds. Cambridge, Massachusetts: Massachusetts Institute of Technology.Romeo-r- Anthony A. and John Rapoport. 1984. Social Versus Private Re-turns to the Innovations by Small Firms Compared to Larpe Firms. Wash-ington, D.C.: U.S. Small Business Administration, Office of Advocacy,July, NTIS #PB85 196996.U.S. General Accounting Office. 1984. Research and Development inIndustry: 1982. Washington, D.C.: U.S. Government Accounting Office.ACKNOWLEDGEMENTSThe NBS and DOE staff of the Energy-Related Inventions Program(ERIP) contributed significantly to this evaluation, and their assis-tance is appreciated. Also appreciated are the insightful commentsprovided by Paul Sullivan and Jon Soderstrom to an earlier draft ofthis paper.DISCLAIMERThis n;port was prepared as an account of work sponsored by an agency of the United StatesGovernment. Neither the United States Government nor any agency thereof, nor any of theiremployees, makes any warranty, express or implied, or assumes any legal liability or responsi-bility for the accuracy, completeness, or usefulness of any information, apparatus, product, orprocess disclosed, or represents that its use would not infringe privately owned rights. Refer-ence herein to any specific commercial product, process, or service by trade name, trademark,manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recom-mendation, or favoring by the United States Government or any agency thereof. The viewsand opinions of authors expressed herein do not necessarily state or reflect those of theUnited States Government or any agency thereof.

Impact of the energy-related inventions program on the national economy

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Impact of the energy-related inventions program on the national economy

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