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Lux Research Nanomaterials Intelligence 1

Nanotechnology Corporate Strategies

As nanotechnology slowly matures from lab scale to industry disruptor, large global
companies are taking increasingly selective approaches to innovation and R&D.

Corporations Are Adopting a More Discerning Approach to Nanotechnology


Large global corporations have proven to be key drivers of nanotechnology commercialization,
accounting for $6.6 billion of the $13.5 billion spent worldwide on nanotech R&D. Leading
corporations active in nanotechnology have been responsible for bringing nameplate nano-enabled
products to the market, from Johnson & Johnson’s nano-encapsulated chemotherapeutic Doxil to
Freescale’s magnetoresistive random access memory (MRAM) chips. However, even with the
enormous resources available to these companies and the years of experience with commercializing
advanced technology, few corporations have had breakout successes from nanotechnology, for all
of the smaller success stories. 1 One reason is that many companies struggle to understand what
strategies and organizational structures to adopt to best develop and exploit nanotech innovations,
frustrated by the complex interdisciplinary nature of nanotech and the confusing flood of
technologies thrown up by universities and start-ups.

To dig deeper into how large companies approach nanotech innovation and R&D, we conducted in-
depth interviews with executives accountable or having broad visibility for nanotechnology
activities at 31 multinational corporations across three sectors impacted by nanotechnology –
manufacturing and materials, electronics and IT, and healthcare and life sciences. The average
company had revenues of $48 billion and employed 81,000 people, and has been conducting
nanotech R&D for eight years; 58% of the firms we interviewed claim to have a high level of
experience with emerging nanotechnology (see Figure 1-2 and 1-2). Clients should note that these
interviews parallel previous exercises from the December 2004 Lux Research report “The CEO’s
Nanotechnology Playbook” and the February 2006 Lux Research report “How Industry Leaders
Organize for Nanotech Innovation.” 2

In our discussions with these executives, three themes stood out:

• While awareness is at an all-time high, most respondents see nanotech as a low priority.
While 65% of corporations say senior management has high awareness of nanotech – almost
double what we heard two years ago – 55% say nanotechnology remains a low priority (see Fig.
2-1 and 2-2). Interviewees listed technology immaturity, unclear market opportunities, and
dissatisfaction with past projects as some of the reasons for deprioritizing internal nanotech
activities. Companies are more likely to see nanotech as “just one more tool available to us,” and
as a result, there’s a decreasing sense of urgency around aggressively prioritizing nanotech per se.
“The CEO is very familiar with nanotechnology, but we are not trying to invent something that doesn’t
have a home. We need to find a market need and then make a solution – until then, we will not
recommend an increase in efforts.”

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Fig. 1: Corporate Interviewee Profiles

1-1: Percent of companies by 2007 annual revenue


40%
Mean: $48 billion
29% Median: $25 billion
30%
n=30
19% 19%
20% 16%
13%

10%

0%
$2B to $10B $10B to $20B $20B to $40B $40B to $60B $60B to $404B

1-2: Percent of companies by 2007 employees


40%

Mean: 81,275
29% Median: 51,628
30%
26%
n=30
19%
20% 16%

10% 6%

0%
1K to 20K 20K to 50K 50K to 100K 100K to 200K 200K to 471K

• The lack of iconic breakthroughs in nanotech has resulted in growing skepticism. In the
short term, most respondents don’t expect the impact of nanotechnology on their companies to
be of any significance – many see it as a “technology without a product.” A full third of
respondents pointed to an ongoing “nanotechnology backlash,” citing a variety of challenges,
including nanomaterial costs; environmental, health, and safety (EHS) issues; and quality control
as serious roadblocks to nanotech commercialization (see Figure 3). Many companies have also
seen investments in nanotech start-ups fail to pay off, from Itochu’s investment in NanoOpto to
Koch Industries’ investment in NanoProducts.
“We are not sure if it is the organization that is poor or if the nanotech ‘industry’ is still in the infancy
stage, but so far efforts in nanotechnology have not panned out, leaving a lot of people disappointed.”

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Lux Research Nanomaterials Intelligence 3

Fig. 2: Corporation Have High Awareness of Nanotech, But Don’t Make it Priority

2-1: “How high a priority is nanotechnology 2-2: “What level of awareness do senior
at your company?” executives at your company have
of your nanotechnology activities?”

23%
19%

Top three High


55% 16%
High Low
Low Some

23% 65%

n=31 n=31

Fig. 3: Corporations Face Diverse Challenges in Exploiting Nanotech

“What are the challenges facing nanotech development and commercialization today?”

EHS issues 42%

Cost 35%

Nanotech backlash 32%

Quality issues 26%

Small market 26%

Scale 10%

n=31
Slow development times 6%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

• Corporations are looking to external innovators to complement internal nanotech efforts.


As large companies shy away from investing large amounts into basic R&D, in nanotech or
otherwise, companies see collaborations with universities, government labs, or start-up
companies as very attractive alternatives (see Figure 4). Corporations are applying this “open

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Fig. 4: Corporations Are Collaborating With External Organizations in Nanotech

“Do you work with the following external organizations as part of your nanotech efforts?”

Academic institutions 100%

Start-up companies 71%

Large corporations 58%

n=30
Public sector agencies 39%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

innovation” approach to nanotech through university alliances like the one Nokia has built with
the University of Cambridge, or government consortia, like the EU’s AMBIO project on nano-
enabled marine biocides, joined by AkzoNobel, Laviosa, and BASF, to share the costs and risks.
“As cycles to bring technology to market are getting shorter and R&D remains a long and expensive
process, you need to work with the likes of universities and consortiums to share the cost and
complement skills or capabilities that may be missing.”

Headcount, R&D, and Revenue Have Slowed, but Are Expected to Keep Increasing
The low priority of, and skepticism about, nanotechnology might suggest that companies would be
shifting resources away from it, but interviewees nevertheless reported increases, albeit small ones,
in R&D work on the nanoscale. In addition, they’re seeing nanotech make an impact on the bottom
line, with a modest but growing share of revenues incorporating nanotech innovations. Our
discussions indicate that:

• Employees working on nanotechnology are growing, but at a slower rate. While the number
of employees involved in nanotech R&D is at the highest it’s ever been, growing 38% in the last
two years, it has slowed significantly from the 60% growth seen from 2004 to 2006 that
companies cited to us in 2006. In 2008, the median company had 25 employees dedicated to
nanotechnology efforts, up from 18 in 2006 (see Fig. 5-1). While companies expect employee
count to grow 52% over the next two years, much of the gain is led by the healthcare and life
sciences sector, where executive see 83% growth as nanotech begins to rise in priority there,
likely due to ongoing success stories in nano-enabled pharmaceuticals.

• Corporations don’t expect nanotech’s budgets share to grow much over the next two years.
While in 2008 the average company in our sample will spend $33 million on nanotech R&D and
expects the figure to increase to $39 million in 2010, as an overall percentage of R&D they
project nanotech spending will remain at around 6% over the next two years (see Fig. 5-2).

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Fig. 5: Corporations See Growth in Nanotech Employees, R&D Spending, and Revenues

5-1: “What percentage of your company’s products by revenue incorporate


nanotechnology?”
8.0%

6.0%
Percent of total
revenue 4.0%

2.0% n=28

0.0%
2006 2008 2010

Mean Median

5-2: “How many people are working on nanotechnology at your company?”

120

90
Total employees
60

30 n=29

0
2006 2008 2010

Mean Median

5-3: “What percentage of your company’s R&D budget goes to projects working at the
nanoscale?”
8.0%

6.0%
Percent of total R&D
budget 4.0%

2.0% n=28

0.0%
2008 2010

Mean Median

The 2008 figures represent a steep increase over the sum from two years ago, however, when the
average company spent just $26 million on nanotech R&D.

• Nano-enabled products grow but remain small as a percent of revenue. While 75% of
interviewees claim some revenue from products incorporating nanotechnology, the median

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Fig. 6: Most Interviewees’ Company Have a Specific Nanotech Strategy

6-1: “Does your company have a specific 6-2: “How effective would you say your
nanotechnology strategy?” company’s approach is at deriving
business value from nanotechnology?”

6% 19%

Very effective
16%
Yes
Somewhat effective
No Too early to tell

n=31 65% n=31


94%

company generated less than 1% in 2008, more or less constant since 2006 – though the average
grew from 3% to 4% (see Fig. 5-3). Materials and manufacturing companies lead with a 0.5%
median and 4% average, followed by electronics and IT with 0.25% median and 6% average.
However, companies do expect revenue to grow to a median of 2% by 2010, indicating optimism
about at least some products in their pipelines.

Nanotech Strategies Are Explicit, Decentralized, and Owned By R&D – but Often Aren’t Effective
We also queried interviewees about their firms’ nanotech strategies, to learn what works and what
doesn’t. We heard that:

• While virtually every company has an explicit strategy, only half claim to be effective. A
solid 94% of respondents report having a specific strategy for exploiting nanotech innovation,
most often driven from the top: 61% of respondents claim that high awareness by senior
management helps develop internal strategy (see Fig. 6-1). However, only 65% claim these
strategies are very effective (see Fig. 6-2). These strategies tend to be more ad hoc: Most
interviewees admit to taking a passive approach to nanotechnology, engaging technology
scouting and monitoring rather than focused product development, and only 55% claim to have
a specific group or initiative actually dedicated to nanotechnology. What’s more, there’s no
direct correlation between any specific strategies and effectiveness, indicating that there’s no
one-size-fits-all approach to exploiting nanotech.

• The majority of companies maintain a decentralized approach to nanotech activities.


Among our interviewees, 65% described a decentralized organizational structure to nanotech,
many citing the ability to work closely with customers and partners as one of the biggest
advantages of such an approach (see Fig. 7-1 and Fig 7-2). Just 35% take a centralized approach,
concentrating their efforts into one working group or research lab. However, companies with
both centralized and decentralized structures use a combination of steering

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Fig. 7: Interviewees Pursue Different Organizational Models for Nanotech

7-1: “How would you describe the organization of your nanotechnology activities?”

16%

Decentralized

Centralized

n=30
65%

7-2: “What are the advantages of this organizational approach?”

Decentralized

Close contact with external parties 63%


Focus on core competences 42%
Priorities in right place 42%
Work closely with business units 37%
Processes expedited 32%
Interdisciplinary enhancements 32% n=19
Fits overall corporate approach 32%
Inexpensive 26%

0% 10% 20% 30% 40% 50% 60% 70%

Centralized

Priorities in right place 73%


Close contact with external parties 73%
Communicate better 64%
Access resources 36%
Fits overall corporate approach 36%
Home for disruptive technologies 36% n=11
Monitor progress closely 36%
Work closely with business units 36%

0% 10% 20% 30% 40% 50% 60% 70% 80%

committees, interest groups, and internal meetings to coordinate nanotechnology work with
other parts of the firm.

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Fig. 8: R&D Remains in the Driver’s Seat for Nanotechnology Activities

“Who is accountable for nanotechnology activities?”

13%

10%
R&D
Line of business
None

77% n=31

• Where there’s a clear focus, nanotechnology accountability lies with R&D. Fully 74% of
respondents report that accountability lies with R&D; while 10% of accountability lies with joint
R&D/line-of-business, none yet assign responsibility solely to business units (see Fig. 8). This split
isn’t surprising, given that few corporations are beginning to see significant revenue – most are
still focused on generating significant nanotech expertise and IP. However, even companies with
significant revenues from nano-enabled products are likely to cite a R&D focus, as nanotech
affects diverse product line; meaning that assigning responsibility to any one business unit often
makes little sense.

Nanotech Challenges Prompt Firms to Turn to External Innovators and Take a Selective Approach
Frustration with lack of quicker results and dissatisfaction with strategies are prompting companies
to take different tacks to try to profit from nanotech work. We heard two approaches emerging as
themes from our discussions:

• Corporations are taking an “open innovation” approach towards nanotechnology. As large


corporations find nanotechnology development more demanding and complex than initially
believed, they‘re increasingly leaning on external organization to like universities, start-ups,
public agencies, and even other corporations. Some 87% of interviewees rely heavily on external
innovation, and all of the companies we spoke with noted collaborations with universities (see
Fig. 9). These executives cited advantages including sharing cost and risk of fundamental
research, gaining visibility into outside activities, and leveraging outside expertise.
Collaborations similar to BASF’s alliance with Université Louis Pasteur in Strasbourg to pursue
nanoporous polymers research are seen as critical elements of any firm’s approach to nanotech.

• Tactics are shifting toward selective capitalization, rather than thematic research. The
companies we spoke with are taking a more pragmatic approach with regards to
nanotechnology, rather than pursuing nanotech for its own sake (see Fig. 10). While 29% of
companies are interested in being first to market with nano-enabled products, 68% of companies

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Fig. 9: Companies See Many Advantages in Working with External Organizations

“Why do you work with external organizations?”

Leverage their expertise 74%

Can't do it all in-house/don’t want to do in-house 58%

Screen/survey outside opportunities 55%

Can share R&D cost/risk 52%

Access new technologies 52%

Visibility of outside activities 45%

Search for collaboration partners 35%


n=31
Outsource fundamental research 29%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Fig. 10: Strategies for Nanotech Tend Toward a Selective Capitalization Approach

“What is your strategy for exploiting nanotechnology innovation?”

Applications focused 71%

Survey the field and move quickly on opportunities 58%

Systematically monitor the market 52%

Enhance existing product portfolio 45%

Be first to market in core areas/be a technology leader 29%

Survey the field through external relationships 26%

Be a fast follower 6%
n=31
Exploit nanotech for process enhancements 3%

0% 10% 20% 30% 40% 50% 60% 70% 80%

are an approach we call “selective capitalization.” These companies focus on specific applications
that fit with corporate activities, and keep an eye out for ways that nanotech can add value in
those areas, cherry-picking those that are a good fit and defaulting to non-nano solutions

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otherwise. For instance, an aerospace company interested in novel composites might, rather than
organizing a team around nanocomposites, simply monitor the field to use those that are
sufficiently mature, like carbon nanotubes for electrostatic dissipation. Meanwhile, it would still
be pursuing solutions such as carbon fiber composites for applications like structural materials,
where nanocomposites don’t make the grade – all within a generic composites group instead of
one with nanotech as a specific theme.

Note that these two approaches fit hand-in-glove – spotting nanotech solutions to capitalize on
entails watching for external technologies and bringing in a technology from outside the
organization – and complement the decentralized organizations most companies are building.
Expect to see companies developing nanotech make use of these tactics in tandem.

Implications
As nanotechnology continues to mature, expect to see that:

• Nanotech efforts will devolve to business units in materials firms... As chemicals and
materials companies see revenues increase from products containing nanomaterials, many will
want to see business units become more accountable for them. German chemicals giant Evonik
was on the leading edge of this trend when it spun its Advanced Nanomaterials internal start-up
back into its Aerosil & Silanes business unit after the group grew to millions of dollars worth of
revenues.

• …while stay R&D-bound in product-focused firms. Conversely, nanotech’s nature as a diverse


enabling technology means that it will likely never make sense for a final product manufacturer
like Toyota Motor or Motorola to place nanotech responsibility with a business unit. While these
companies will make ample use of nanointermediates like coatings or memory chips, the locus
of nanotech coordination will sit more naturally with R&D units that can coordinate with
innovators and transfer technologies to business units for integration into products as
appropriate.

• Cynicism about the paucity of disruptive breakthroughs will cause companies to miss
incremental opportunities. Companies looking to nanotech for industry-changing
breakthroughs will be disappointed more often than not. Nanotech is fundamentally an
enabling technology, and as such it will more often enable more modest, but still profitable,
improvements to existing products. Disregarding incremental developments due to cynicism
about nanotech’s failure to deliver on the often-overheated hype will prevent corporations from
building expertise and relationships, and could result in their being ill-prepared when more
disruptive opportunities appear. Companies should also be sure to look to find process
innovations that can reduce costs, as GM has done in pursuing machining tool coatings that cut
downtime and energy usage on assembly lines.

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Recommendations
In light of these scenarios:

• Firms should keep barriers low between R&D and business units. As companies look to use
selective capitalization to place nanotech innovations in products while coordinating nanotech
through R&D, business units will need to be kept in the loop to help keep the focus on those
specific technologies that match product and marketing goals. Open lines of communication
between R&D and lines of business, shared accountability, and clear strategy are essential for
success. The most successful way to keep the necessary intelligence flowing is by appointing
champions for relevant nanotech categories, but goaling those staff on technology transfer to
business units.

• Specialists and universities should scratch corporations’ itch for open innovation. As large
corporations increasingly rely on external technologies, university research labs and start-ups
have a golden opportunity for partnerships and funding. To take advantage, however, it’s crucial
that tech transfer offices and business development heads at start-ups grease the wheels for
collaborations, as corporations look to choose among many suitors. Universities such as MIT and
Oxford, with broad research portfolios, interdisciplinary expertise, and experienced tech transfer
office, are particularly attractive. Nanomaterials specialists with corporate-friendly strategies, like
a willingness to dive deep into co-developing key applications with partners, will also find
success (see also Section 4.3 of this report for more on specialist strategies).

• Corporations light on nanotech resources should focus on product-oriented joint ventures.


Firms that don’t have big internal nanotech efforts needn’t stay out of the game entirely, but can
leverage their own industry expertise and channels to market to create strategic joint ventures
with corporate or nanomaterial specialist partners that have resources to spend on nanotech
R&D. For instance, Sealed Air partnered with start-up NanoPore to create a joint venture called
NanoPore Insulation to create packaging products from nanoporous aerogel material without
having to invest heavily from its own R&D programs.

For more information


Please see the report Nanomaterials State of the Market Q3 2008: Stealth Success, Broad Impact.

1 Certainly products using established nanotechnology, like Intel’s Pentium 5 processors, have made major splashes, but our
focus here is on companies’ efforts to commercialize trickier emerging nanotech innovations. For more on the impact of
established versus emerging nanotechnology, see Section 2 of this report.

2 While some of the companies interviewed were the same for each of these reports, many were not. Because our sample size,
while representative, isn’t large enough to make fine comparisons statistically significant, we’ve mostly avoided referencing
data from previous reports directly, except where trends are most pronounced.

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