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State of the art of macro-engineering
Tecbwdogy In So&y, Vol. 6, pp. 285-297 (1984) Printed in the USA. Al1tights merved.
0160-791x/84 $3.00 + .oa
Copyright @1985 Pctgamon Press Ltd
State of the Art of Macro-Engineering Collaborative Developments and Future Directions George Kozmehky
ABSlXA CT. This paper evaluates the state of macro-engineentag in the United States by reviewing three key areas that afect the progress of the $e/d: strategic impt’zcationsof the changing economy; large-scale technology venturihg and its emerging institutional responses; and the next steps in co/.aborative technology venturing. The hypercompetitive intemationai environment in which companies must compete has imposed new pressures on business, government, andacademia. It has forced a reassessment of the process of taking and shanitg tik, which, in turn, is having a direct impact on the development of macro-engineering and the nature of collaboration. Macro-engineering is stilapioneerirzg task. It requires a transfoonnationalmanagement to be successful. To compete effectively in the glob& economic arena, it ti necessaq to find creative and innovative ways to l’inkpublic sector initiatives with pn’vate sector resources for large-scale proiects.
What is the state of macro-engineering in the US today? In determining this, it is essential to identify and evaluate the extension of today’s collaborative developmental efforts and to chart future directions for large-scale programs in meeting current economic needs and demands. In assessing the status of macro-engineering activities, it is interesting to look at the findings of the IC’ Institute at The University of Texas at Austin related to research in this discipline. IC’ has been concerned with macro-engineering for some time. A number of its Fellows have participated in some measure to better define the terminology and structure of large-scale projects. They have placed special emphasis on policy matters from the perspective of interface between the public and private sectors and their involvement in meeting the demands of society that involve large-scale needs. For the past two years, the research effort at IC? has been concentrated on the commercialization process, that is, the process by which R&D results are transformed into the marketplace as products and services. Commercialization, as the term is used, encompasses the process by which technological resources are transformed into economic wealth. As such, commercialization helps to define the educational and training requirements for the present as well as the emerging marketplace. George KozmetrRyir Director of IC’ Institute, hoids the J. Ma&n West Chair, and is Professorof Management and Computer Sciences at The Universityof Texasat Austin. He alsoservesas ExecutiveAssoctitefor EconomicAffairsto the Board of Regents of The Universityof Texas System. 285
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Commercialization can thus be a major driving force that invigorates new industries and rejuvenates older industries. In previous work, IC’ researchers found that generally society transformed its resources into economic wealth primarily through its existing coherent institutions. When one examines macro-engineering programs and projects, it is clear that a number of institutions are involved in their initiation and completion. How they are structured to meet large-scale needs and demands has been the focal point of interest. The Institute is especially interested in how creative and innovative activities are made to work successfully in an organized way, so that the commercialization process is an act of management rather than the act of an individual or mentor. When Institute personnel concentrate on macro-engineering activities, they are more interested in the effectiveness of collaborative efforts, that share the risks and rewards, than in the act of a single firm or entity. In 1982, when the Institute concentrated on the commercialization of defenserelated technology in the US, attention was drawn to a paper by Dr. Richard D. DeLauer in which he stated: To set the stage, let us look at the historical precedents. The Defense Department has developed the following: time share, pocket switching and Iifthgeneration computers. Japan has now made fifth-generation computers - artificial intelligence, expert systems, natural language-a national priority. The Japanese government is committing $500 million, and their industry will at least triple that figure. Their goal is to capture 40 percent of the world information market. The US invented the concept -primarily the Massachusetts Institute of Technology, Stanford and Carnegie-Mellon-but it has been sitting around for five to seven years and nobody had done a thing about it. 1 DeLauer’s comment that “nobody has done a thing about it” applies to many other macro-engineering projects. In many aspects, MIT, Stanford and CarnegieMelon successfully accomplished a major research program in developing the concepts of knowledge-based computers. Commercialization of the research concepts could result in a number of macro-engineering projects, including the development of the fifth-generation computer and a series of other large-scale projects that encompass the use of fifth-generation computer developments and by-products. These projects would thereby meet a whole series of societal needs and economic demands. At IC2 this process of commercialization is referred to as technology venturing . Thee Key Areas The remainder of this paper looks at IC2 research in technology venturing key areas that affect the progress of macro-engineering, namely, 0 0 0
Strategic Implications of the Changing Economy; Large-Scale Technology Venturing and Its Emerging Responses; and Collaborative Technology Venturing: The Next Steps.
in three
Institutional
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Strategk Intplsathns Strategically, there is a need to examine the changing basis of the US economy which now emphasizes productivity over rapid expansion or job creation, adaptability and flexibility over efficiency and effectiveness, and quality and choice over quantity. In this changing economy, growth is based on technology diversification and the needs of a demographically shifting population. At the same time, competition within a global marketplace is economic, scientific, and technological in nature. There are a number of significant macro-engineering stimulants that are helping to create a newer American response to the changing economy. Among these stimulants are: 0
0 0
0 0
A large number of federally sponsored macro-engineering programs for the next generation that are concerned with national security, space commercialization, health care, and public infrastructure. A growing ndmber of leading-edge, state government, job creation initiatives that are fostering important larger scale technology centers. Unprecedented collaborative relationships between universities and corporations that hold promise for changing basic industries as well as forming newer, very large-scale, emerging industries. Pioneering programs and linkages among government, academia and business that are large-scale in nature. There is increasing evidence of private, industry-wide R&D consortia for basic research and generic technology, as well as product developments that integrate education, technology transfer, commercialization, and diffusion of technology and products, and contribute viable public/private infrastructures.
Domestically, all these stimulants indicate a need to recognize that macroengineering is becoming more than an academic interest. There are now a large number of federally budgeted macro-engineering programs and projects. These need to be understood through more relevant data bases. Otherwise, these macroengineering programs may be lost in the confusion of talking about national budget deficits, protectionism, recession and recovery, inflation, unemployment, foreign trade, and industrial policy initiatives. Internationally, there are very significant but changing markets for macroprojects in the Third World. The size of the market for the decade of the 1970s was over $1 trillion for over 1,600 planned investments. These macroprojects (projects over $100 million) depend on transnational partnerships and arrangements for capital, technology, management and market access. There are over 3,000 companies worldwide that provide these services. US firms generally won the largest contracts, namely those over $10 billion each. This is brought out in a quotation from an ICI study by Kathleen J. Murphy: 0
A more fitting dividing line might be between those projects which require that technologies be tailored to local geological and other factors, and those
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projects which require processes that are installable on a turn-key export basis, with minimal tailoring to specific local conditions. panies have been able to distinguish themselves in both areas.’
or plantUS com-
Charactetistics of US Firms A review of US companies ects shows the following:
participating
in the worldwide macro-engineering
proj-
The list of leading US firms is small, concentrated and specialized. Each firm offers a variety of services, including feasibility studies, engineering consulting, and design. They participate in design consortia and more often team with foreign companies, rather than with other American companies. US firms are highly competent in projects where they are strong nationally. Third-world customers tend to select the leading technologies when making their decisions. American firms are aggressive international marketers and suggest macroproject development possibilities. Major worldwide changes are underway in the marketplace. During the 197Os, the marketplace was for metal extraction and processing. In the early 1980s, it was for oil refineries, oil and gas pipelines, and coal and synfuel projects. The emerging macroprojects are developing around worldwide infrastructures: cross-country roads, water supply and sewer systems, and irrigation systems. Foreign exchange and international economic conditions are requiring changes in transnational partnership agreements. There is increased pressure for local partnerships and for more active participation of local companies in the host nation.3 American firms involved with macro-engineering projects have become more realistic in their strategic approaches and understanding of the key issues-domestic and international. In this regard, two companies can be used as examples: Westinghouse and Bechtel. Francis P. Cotter, Vice President, Government Affairs, of Westinghouse Electric Corporation, has set forth two major strategic suggestions: 0
There is a need to recognize the importance of large-scale industrial efficiency in our antitrust laws. (His point is that macroprograms will, of necessity, be very large in terms of revenues and scopes, especially for the efficient firms. He also goes on to point out that such laws need to recognize that transfer and efficient adaptation of technology for large-scale programs may require the collaboration of hundreds of competing user entities. His specific example was in the nuclear energy industry where the market consists of 234 investor-owned utilities, 1,03 3 rural electric utilities, and 2,195 municipal bodies. Current antitrust laws do not allow for adequate developer-user collaboration .)
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Federal export policies, as they relate to technologies surrounding macroprojects, need to take into account worldwide competition. (He illustrates this issue by pointing out that there are over 300 nuclear power stations in the world; we have built only 80 in the US. US nuclear export policy is driven by the theory that used fuel of the power station contains plutonium that can be separated to make weapons. Power reactor plutonium is almost unusable for weapons. Meanwhile, R&D funds derived from worldwide revenues can be lost, and we do not reap economic benefit for better product developments from macro-engineering advances.)
Cordell W. Hull, Senior Vice President and Chief Financial Officer of the Bechtel Group, Inc., has set forth the financial and investment strategic issues that relate to macro-engineering. He points out that these issues must be resolved in the context of a “forward technology venturing.” By this he means that it is important to find a way of working with the non-technical, financial investments, regulatory and institutional problems that bear on large-scale programs. By way of example, he used the True Water Project in California, an integrated, combined cycle coal gasification project. This project involved a consortia of five companies and several associations representing the utility industry. They pooled their respective technologies, equipment and engineering resources, and each took an allocated share of the risk to develop the project. In addition, the project received from the Synthetic Fuels Corporation a price guarantee to cover possible shortfalls during the first five years of the project’s operations. Large-Scale Technology Ventunrzg: Emerging Institutional Responses
Most large-scale projects by their very nature involve complex interactions between various institutions that are concerned with political, technological, economic, social and cultural aspects of society. The collaboration among such a set of institutions has never been a common phenomenon. On the other hand, there has been an evolving collaborative relationship between government and business. These evolving relationships appeared during three transformation periods in the US: the 184Os-1850s; the 1930s; and the 1970s. In the 184Os, the state and local governments offered loans or grants to railroad and canal companies and later invested in their stock. Subsequent bankruptcies discredited many of the early arrangements. In the 185Os, the Federal government subsidized the railroad industry through land grants, loan guarantees, and mailcarrying contracts, and even went so far as to sponsor private corporations, e.g., the Union Pacific Railroad Corporation. The Reconstruction Finance Corporation (RPC) was created in 1932 to stimulate industries during the depression. During World War II, it played an important role in the development of the aluminum, steel and synthetic rubber industries. The Tennessee Valley Authority (TVA) was created to serve multiple federal policy goals - flood control, navigation, hydro-electric power, and experimentation in regional economic planning. The 1970s saw the rise of a number of government-sponsored financial services
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macroprojects, such as the Federal National Mortgage Association (or Fannie Mae) and the Student Loan Marketing Association (Sallie Mae). Each of these institutions involves over $5 billion. Today each is a private corporation after being originally federally chartered. Among the recent technology-based macro-engineering projects that have been joint-ventured by the Federal government are: (1) COMSAT Corporation and (2) the Synthetic Fuels Corporation. Of these, only COMSAT Corporation can be considered a successful large-scale joint technology venture. From its beginning, the major problem has been transferring the capability of a global communication system, once it was technologically developed by the government, to the private sector, while maintaining global scientific and economic preeminence in a specific time period. COMSAT’s success was due to three factors: (1) it was tied to achieving national goals; (2) the technology was ready to be transferred; and (3) innovative private technology venturing institutional structural arrangements were promulgated. Specifically, in the early 196Os, when there was not a private industry technologically competent to develop a global communication system, the compromise was reached for 50% of the initial stock issue in COMSAT to be subscribed to by the leading international carriers and 50% by the general public. Since it was a Congressionally chartered corporation, each class of equity shareholders elected six members each of the board, and the President of the US appointed three additional members to represent the public. The Synthetic Fuels Corporation (SFC) is generally recognized as an unsuccessful enterprise. Unlike COMSAT, the SFC’s initial financing of $20 billion came from the Federal government. The Synthetic Fuels Corporation is managed by a sevenmember bipartisan board of directors appointed by the President of the United States for staggered seven-year terms. Structuring the governance of macro-engineering projects as technology venturing can make a decided difference in their success. It is perhaps more important than looking at how the projects themselves were managed or financed. Structure reflects institutional relationships, responsibility and requirements for risk-taking and sharing. The structure directly affects the way large-scale programs or projects are to be financed and managed. The Traditional Mode Federal priorities and funding for macro-engineering are still in the traditional mode. That means that Defense projects and other national comprehensive security-related projects are looked upon as filling government needs. The success of the project is to rely on competitive forces; companies bid on the project. The successful bidder is not expected to coordinate a cohesive and coherent program that allows for research, generic technology, and product development. This is usually left to the Department of Defense weapon system management. DOD is thus traditionally responsible for transferring technology developed by federal funds. Individual firms have more often considered their own technology to be a
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accidental. They can have a catalytic impact and cause reactions far beyond their immediate location within the state. Very often these impacts are national and international in scope, It is worth taking a look at some of the specifics of technology venturing in the state government, private business, and academic areas. The response of the sectors can be characterized in five program areas: (1) policy developments; (2) education, training and employment; (3) linking university/industry research; (4) technical and management support; and (5) economic support and incentives. Policy Developments There has been a great deal of activity in 27 state capitols in the policy development areas. Over 94% of the total federal R&D funds are expended in these states. The governors of these states have appointed special advisory groups with the charge to analyze and report on the states’ capabilities and needs. They are also charged to recommend programmatic solutions to promote research and development as well as industrial expansion. These task forces are generally referred to as high technology or science and technology task forces. For example, Massachusetts has created a State Technology park Corporation to establish a statewide network of facilities. The first one so installed is a $40 million Massachusetts Microelectronic Center. Half of the funding will be state source and the balance by a consortium of companies and academia. Education, Training and Employment A number of states have begun to address the problem posed to strengthen elementary and secondary education. State policy and planning advisory groups are being set up to meet broadly determined needs of schools. Thirty-three states have programs of “customized job training” to meet the needs of specific industries. An example is Missouri’s new General Motors Training Program. This is a cooperative effort of the state, GM, and the United Auto Workers to train workers in robotics and related technology skill areas for the opening of a new GM assembly plant. It is hoped that, ultimately, some 2,000 hourly workers will be trained as technicians to operate this plant. Several states are earmarking higher education as a high priority in achieving high technology parity. At Arizona State University, for instance, a new Center for Excellence in Engineering is under development to support education and research in numerous high technology disciplines. The Center, founded by a combination of sources from the state government and the private sector for a total of $33 million, is scheduled for completion this year. Lin Ring University/Industry Research In 1983 alone, industry spent some $300 million on scientific and technical R&D in academic institutions and libraries. Although this figure is small compared to the .$7 billion government funding of academic research, it does represent a fourfold
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growth over the past decade. There is also an increasingly evident role of the state government becoming involved with industry in joint funding of new research facilities. In 1980, 74% of all business support for university research came from just five major industries: gas and oil; chemicals; electrical machinery; food, beverages and tobacco; and pharmaceuticals. Another concept of great resource value to high technology growth is research parks. With their well-integrated clusters of industry/university linkage, research parks either exist or are in some stage of planning and development in 18 states. Tecbnicai and Management Support
Focused heavily toward small businesses within the states, these programs provide effective avenues for firms to deal with the possible trauma of commercialization of technologies into the public sector. “Innovation Centers” have become increasingly popular as tools of both states and academic centers to provide management and technical assistance to small technology based businesses. Research incubators are another promising tool being employed by the states to provide a suitable environment for “hatching” new spinoff applications of high technology ventures. To the innovation programs and research incubators, a number of states have also established training and support programs for entrepreneurial development, feeling that this is one of the most critical areas in promoting technology commercialization. The last program cited in the NGA report is that of economic support and incentives. Economic Support and Incentives
A number of states are now developing special initiatives, such as tax incentives, enterprise zones, research and industrial parks, and direct financial assistance in the form of low interest bank loans and loan guarantees to fulfill the start-up capital needs of new technology firms. One area of concentrated interest is state support and implementation of private venture capital sources for small technology firms. Given the high risk and generally long-term payback time of typical venture capital investments, firms with less than $500,000 “start-up needs” are not attractive investment targets for the private market. A fine example of state involvement in this area is the Massachusetts Technology Development Corporation. Operating both as a public agency and non-profit corporation since 1979, the MTDC has invested $3.4 million of its own funds into 20 individual firms. More dramatically, it has used these investments to leverage more than 522 million in private sector money to these same companies. A creative approach was taken by the Michigan Legislature in 1982, permitting the use of Michigan State Retirement Funds to be used as a venture capital base for equity investment in Michigan high technology firms. The estimated value of these venture funds is $350 million. Since 1981, there have been a series of private-corporation joint research efforts,
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The pioneering institutions, such as Semiconductor Research Corporation (SRC), Council for Chemical Research (CCR), Center for Advanced Television Studies (CATS), and Microelectronic and Computer Technology Corporation (MCC) are favored by the current Administration and Congress. The obstacle to such consortia in the past has been ambiguous legal status under the antitrust laws that would entail the risk of huge penalties. The passage of the Cooperative Research & Development Act of 1984in October 1984has done much to alleviate the legal concerns. One result of the passage of this act is likely to be a proliferation of large-scale R&D consortia. Already there are a number of consortia being considered. Among them are : 0
0
l
Military Software Productivity Consortium-TRW, Lockheed, Boeing, Rockwell and seven other defense contractors are considering new ways to produce computer programs and other software techniques for military applications Fiber optics - Battelle is trying to put together a 20-company consortium to develop components to tie together fiber optic networks, high-speed communication systems. Allied Corporation, 3-M and AMP, Inc., have already joined. Other consortia are being considered for the energy, steel, machine tools, airframe, and auto engines industries.
The drivers behind these newer consortia are: (1) increasing foreign competition; (2) shortages of highly trained scientists and engineers; (3) difficulty in keeping up to date with developments; (4) gap in new technology transfer, especially when it requires pulling together basic research from different disciplines; (5) a need to fill the gap for diffusion of technology for developing useful commercial products and services by individual companies; (6) a desire to foster more basic research in universities; and (7) a determination to diffuse R&D activities across wider geographic areas. Biotechnology is an example of an important, emerging industry. No US R&D consortia, however, have emerged to compete with the recently formed $100 million, seven-year Japanese consortium in this area. Most US biotechnology research is being conducted by individual firms or by establishing universitycorporate relations. Some of the more recent start-up biotechnology companies have had as equity shareholders other major firms in energy, drugs and agriculture. Newer institutional structures are emerging in the “megabuilding business .” These structures include other domestic and foreign support and process companies as well as domestic and foreign governments. Innovative financing is required that pulls together banks, institutional investors, government financial export credit agencies, and international development organizations, such as the World Bank and IMF. In addition, megabuilding institutions are required to make their own investments in the projects, carry on basic, generic and engineering research, as well as keep up with technological advances in new materials, products and processes. Their marketing strategy includes more than competitive winning of
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contracts. It involves the ability to do longer-range planning and forecasting of markets as well as generate new businesses based on customer hnancial commercialsize demo plants. In summary, there are various emerging institutional responses to large-scale technology venturing. There is a more favorable climate for macro-engineering programs and projects today than there has been since the l%Ns. Whether these programs and projects really achieve their full potential depends on the next steps to technology venturing. The Next Steps It is necessary at this point to pull together the strategic implications and institutional responses so that technology venturing for large-scale programs and projects can go forward. Strategically, at this point in time, transformation better describes the changing nature of the economy and society than transition. The world today is hypercompetitive- a world in which a new economy is emerging as a result of intense domestic as well as fierce global competition. The competition is between states, cities, universities and colleges, industries, and sizes of businesses, as well as between highly industrialized foreign nations. The competition is taking the form of a worldwide, scientific, technological and economic race for preeminence- scientifically, technologically and economically. As a result of this hypercompetition, newer institutional responses are emerging and shaping the direction of the macro-engineering field. These newer approaches are referred to here as technology venturing. Technology venturing is an entrepreneurial process by which major institutions take and share risk in integrating and commercializing scientific research and various technologies. It is a primary means of generating innovative products and services of economic value. To compete effectively in the global economic arena, it is necessary to find creative and innovative ways to link public sector initiatives and private sector resources for large-scale projects. What enuepreneurship does for small business, technology venturing can do for macro-engineering efforts. Technology venturing is an integrative process. It incorporates a dynamic private sector; a creative role for government through federal, state and local technology policies, initiatives and development programs; and newer academic relationships. It fosters corporate and community collaborative efforts, while nuturing positive government /academic/ business relationships. Several major problems arise because of domestic hypercompetition, such as: l
0 0
International competition unintentionally dissipates institutional resources. As a society, it may not be possible to react in time to take appropriate actions for meeting external global competition. University scholars may be deterimentally diverted from the basic function of educating the new breed of creative and innovative leaders, especially in macro-engineering.
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Domestic competition 0 0 0 0
0 0
takes several forms, including:
Between states for limited federal and private resources. Between cities for limited tax dollars for unnecessary duplication of public facilities and infrastructure. Between research universities and colleges for limited faculty and graduate students. Between corporations and capital ventures and universities and colleges for limited research resources required for teaching and industrial growth. Between universities for federal research funds that result in maintaining the status po. Between scientific preeminence and economic preeminence which result in an imbalance between longer term needs of the American society.
To meet international hypercompetition, it would not be wise to stop at defining or establishing requirements for employment and economic growth as were pointed out in the institutional responses by the state governments and R&D consortia. It is necessary to participate in and provide response to the following emerging trends in technology venturing: 0 0 0 0
Removing regulatory barriers to innovation and increased productivity. More incentives for macro-engineering R&D, manufacturing investments, and infrastructure developments in transportation and the quality of life. Clarifying limits for operation of large-scale programs and projects. Modification of antitrust laws to allow a broader range of collaborations among US companies, governments and universities.
In other words, business, government, academic, and other leaders must create the conditions for the creative and innovative application of resources and economic wealth, which reflect a collaborative process, rather than a go-it-alone approach. Future Directions In a real sense, macro-engineering is still a pioneering task, much like that of the early explorers who sought to discover their environment. Those who are interested should proceed with imagination, hope and daring to chart the direction of macroengineering. In this task, as in earlier explorations, the map of this previously uncharted territory will leave much to the imagination. Critical specific needs for macro-engineering must be initiated on a national basis now. Among these are: l
Advancement of the purposes of The American Society for Macro-Engineering (TASME). The Society is a private, non-profit organization concerned with the critical issues related to the development of macro-engineering projects, programs and systems, such as planned cities, industrial complexes, energy projects, regional development projects, outer space programs, and
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other enterprises requiring capital investment ranging from hundreds of millions to billions of dollars. Currently the Board of Directors of TASME is in the process of establishing lines of communication with other macro-engineering groups throughout the world. They have begun the initial planning for a landmark International Conference on Macro-Engineering in March 1986. The Board now believes that a substantive international conference can be organized every two years. 0
0
0
0
0
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Establishment of a large-scale project research institute, consisting of a consortium of universities to study large-scale engineering-management programs and projects. Identification of a National Technology Agenda. As society becomes adjusted to the new global economy, barriers, limitations and problems must be identified to delineate the role of technology. Some of the more specific concerns take a worldwide perspective. Assurance that spinoff opportunities from macro-engineering programs become major large-scale projects. This includes, in the case of government programs, the transfer of technology to the private sector. Establishment of research projects in universities that seek better solutions to public infrastructure and water problems. This includes such special projects as new materials and techniques to reduce costs and improve the effectiveness of maintenance programs as well as construction and operations. Enhancement of private-public technology venturing activities and opportunities. This includes better ways of mitigating unforeseen externalities, as well as risk-taking mechanisms and risk-sharing approaches. Transformation of educational and institutional structures to meet emerging macro-engineering needs.
Transformational management is the process of moving from one state and level of activity and commitment to another. It requires a focus on higher aspirations and longer-range views that not only benefit individual firms and corporations, but at the same time help provide for the general welfare. Transformational management is focused on social consciousness, as well as on decision-making. It deals with monitoring, delineating and clarifying the possibilities for business success in conjunction with the hopes for a better societal future. It consists of persuading people and organizations to willingly undertake the challenges of transforming dreams into realities. Society today faces a great watershed in the advancement of macro-engineering. Just as those who previously needed to harness the strength of will, experience, daring, knowledge and foresight to start major programs and projects, so the members of TASME must become the modern founders of new American macro-engineering efforts that will serve generations to come. Note 1. RobertLawrence Kuhn, l984), p. 94.
cd.. Commercirrti~g Defense R&ted
Techo/ogy (New York: Pracgcr Publishers,
0160-791x/84 $3.00 + .oa
Copyright @1985 Pctgamon Press Ltd
State of the Art of Macro-Engineering Collaborative Developments and Future Directions George Kozmehky
ABSlXA CT. This paper evaluates the state of macro-engineentag in the United States by reviewing three key areas that afect the progress of the $e/d: strategic impt’zcationsof the changing economy; large-scale technology venturihg and its emerging institutional responses; and the next steps in co/.aborative technology venturing. The hypercompetitive intemationai environment in which companies must compete has imposed new pressures on business, government, andacademia. It has forced a reassessment of the process of taking and shanitg tik, which, in turn, is having a direct impact on the development of macro-engineering and the nature of collaboration. Macro-engineering is stilapioneerirzg task. It requires a transfoonnationalmanagement to be successful. To compete effectively in the glob& economic arena, it ti necessaq to find creative and innovative ways to l’inkpublic sector initiatives with pn’vate sector resources for large-scale proiects.
What is the state of macro-engineering in the US today? In determining this, it is essential to identify and evaluate the extension of today’s collaborative developmental efforts and to chart future directions for large-scale programs in meeting current economic needs and demands. In assessing the status of macro-engineering activities, it is interesting to look at the findings of the IC’ Institute at The University of Texas at Austin related to research in this discipline. IC’ has been concerned with macro-engineering for some time. A number of its Fellows have participated in some measure to better define the terminology and structure of large-scale projects. They have placed special emphasis on policy matters from the perspective of interface between the public and private sectors and their involvement in meeting the demands of society that involve large-scale needs. For the past two years, the research effort at IC? has been concentrated on the commercialization process, that is, the process by which R&D results are transformed into the marketplace as products and services. Commercialization, as the term is used, encompasses the process by which technological resources are transformed into economic wealth. As such, commercialization helps to define the educational and training requirements for the present as well as the emerging marketplace. George KozmetrRyir Director of IC’ Institute, hoids the J. Ma&n West Chair, and is Professorof Management and Computer Sciences at The Universityof Texasat Austin. He alsoservesas ExecutiveAssoctitefor EconomicAffairsto the Board of Regents of The Universityof Texas System. 285
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Commercialization can thus be a major driving force that invigorates new industries and rejuvenates older industries. In previous work, IC’ researchers found that generally society transformed its resources into economic wealth primarily through its existing coherent institutions. When one examines macro-engineering programs and projects, it is clear that a number of institutions are involved in their initiation and completion. How they are structured to meet large-scale needs and demands has been the focal point of interest. The Institute is especially interested in how creative and innovative activities are made to work successfully in an organized way, so that the commercialization process is an act of management rather than the act of an individual or mentor. When Institute personnel concentrate on macro-engineering activities, they are more interested in the effectiveness of collaborative efforts, that share the risks and rewards, than in the act of a single firm or entity. In 1982, when the Institute concentrated on the commercialization of defenserelated technology in the US, attention was drawn to a paper by Dr. Richard D. DeLauer in which he stated: To set the stage, let us look at the historical precedents. The Defense Department has developed the following: time share, pocket switching and Iifthgeneration computers. Japan has now made fifth-generation computers - artificial intelligence, expert systems, natural language-a national priority. The Japanese government is committing $500 million, and their industry will at least triple that figure. Their goal is to capture 40 percent of the world information market. The US invented the concept -primarily the Massachusetts Institute of Technology, Stanford and Carnegie-Mellon-but it has been sitting around for five to seven years and nobody had done a thing about it. 1 DeLauer’s comment that “nobody has done a thing about it” applies to many other macro-engineering projects. In many aspects, MIT, Stanford and CarnegieMelon successfully accomplished a major research program in developing the concepts of knowledge-based computers. Commercialization of the research concepts could result in a number of macro-engineering projects, including the development of the fifth-generation computer and a series of other large-scale projects that encompass the use of fifth-generation computer developments and by-products. These projects would thereby meet a whole series of societal needs and economic demands. At IC2 this process of commercialization is referred to as technology venturing . Thee Key Areas The remainder of this paper looks at IC2 research in technology venturing key areas that affect the progress of macro-engineering, namely, 0 0 0
Strategic Implications of the Changing Economy; Large-Scale Technology Venturing and Its Emerging Responses; and Collaborative Technology Venturing: The Next Steps.
in three
Institutional
itfmv-cngineentzg
287
Strategk Intplsathns Strategically, there is a need to examine the changing basis of the US economy which now emphasizes productivity over rapid expansion or job creation, adaptability and flexibility over efficiency and effectiveness, and quality and choice over quantity. In this changing economy, growth is based on technology diversification and the needs of a demographically shifting population. At the same time, competition within a global marketplace is economic, scientific, and technological in nature. There are a number of significant macro-engineering stimulants that are helping to create a newer American response to the changing economy. Among these stimulants are: 0
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A large number of federally sponsored macro-engineering programs for the next generation that are concerned with national security, space commercialization, health care, and public infrastructure. A growing ndmber of leading-edge, state government, job creation initiatives that are fostering important larger scale technology centers. Unprecedented collaborative relationships between universities and corporations that hold promise for changing basic industries as well as forming newer, very large-scale, emerging industries. Pioneering programs and linkages among government, academia and business that are large-scale in nature. There is increasing evidence of private, industry-wide R&D consortia for basic research and generic technology, as well as product developments that integrate education, technology transfer, commercialization, and diffusion of technology and products, and contribute viable public/private infrastructures.
Domestically, all these stimulants indicate a need to recognize that macroengineering is becoming more than an academic interest. There are now a large number of federally budgeted macro-engineering programs and projects. These need to be understood through more relevant data bases. Otherwise, these macroengineering programs may be lost in the confusion of talking about national budget deficits, protectionism, recession and recovery, inflation, unemployment, foreign trade, and industrial policy initiatives. Internationally, there are very significant but changing markets for macroprojects in the Third World. The size of the market for the decade of the 1970s was over $1 trillion for over 1,600 planned investments. These macroprojects (projects over $100 million) depend on transnational partnerships and arrangements for capital, technology, management and market access. There are over 3,000 companies worldwide that provide these services. US firms generally won the largest contracts, namely those over $10 billion each. This is brought out in a quotation from an ICI study by Kathleen J. Murphy: 0
A more fitting dividing line might be between those projects which require that technologies be tailored to local geological and other factors, and those
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projects which require processes that are installable on a turn-key export basis, with minimal tailoring to specific local conditions. panies have been able to distinguish themselves in both areas.’
or plantUS com-
Charactetistics of US Firms A review of US companies ects shows the following:
participating
in the worldwide macro-engineering
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The list of leading US firms is small, concentrated and specialized. Each firm offers a variety of services, including feasibility studies, engineering consulting, and design. They participate in design consortia and more often team with foreign companies, rather than with other American companies. US firms are highly competent in projects where they are strong nationally. Third-world customers tend to select the leading technologies when making their decisions. American firms are aggressive international marketers and suggest macroproject development possibilities. Major worldwide changes are underway in the marketplace. During the 197Os, the marketplace was for metal extraction and processing. In the early 1980s, it was for oil refineries, oil and gas pipelines, and coal and synfuel projects. The emerging macroprojects are developing around worldwide infrastructures: cross-country roads, water supply and sewer systems, and irrigation systems. Foreign exchange and international economic conditions are requiring changes in transnational partnership agreements. There is increased pressure for local partnerships and for more active participation of local companies in the host nation.3 American firms involved with macro-engineering projects have become more realistic in their strategic approaches and understanding of the key issues-domestic and international. In this regard, two companies can be used as examples: Westinghouse and Bechtel. Francis P. Cotter, Vice President, Government Affairs, of Westinghouse Electric Corporation, has set forth two major strategic suggestions: 0
There is a need to recognize the importance of large-scale industrial efficiency in our antitrust laws. (His point is that macroprograms will, of necessity, be very large in terms of revenues and scopes, especially for the efficient firms. He also goes on to point out that such laws need to recognize that transfer and efficient adaptation of technology for large-scale programs may require the collaboration of hundreds of competing user entities. His specific example was in the nuclear energy industry where the market consists of 234 investor-owned utilities, 1,03 3 rural electric utilities, and 2,195 municipal bodies. Current antitrust laws do not allow for adequate developer-user collaboration .)
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Federal export policies, as they relate to technologies surrounding macroprojects, need to take into account worldwide competition. (He illustrates this issue by pointing out that there are over 300 nuclear power stations in the world; we have built only 80 in the US. US nuclear export policy is driven by the theory that used fuel of the power station contains plutonium that can be separated to make weapons. Power reactor plutonium is almost unusable for weapons. Meanwhile, R&D funds derived from worldwide revenues can be lost, and we do not reap economic benefit for better product developments from macro-engineering advances.)
Cordell W. Hull, Senior Vice President and Chief Financial Officer of the Bechtel Group, Inc., has set forth the financial and investment strategic issues that relate to macro-engineering. He points out that these issues must be resolved in the context of a “forward technology venturing.” By this he means that it is important to find a way of working with the non-technical, financial investments, regulatory and institutional problems that bear on large-scale programs. By way of example, he used the True Water Project in California, an integrated, combined cycle coal gasification project. This project involved a consortia of five companies and several associations representing the utility industry. They pooled their respective technologies, equipment and engineering resources, and each took an allocated share of the risk to develop the project. In addition, the project received from the Synthetic Fuels Corporation a price guarantee to cover possible shortfalls during the first five years of the project’s operations. Large-Scale Technology Ventunrzg: Emerging Institutional Responses
Most large-scale projects by their very nature involve complex interactions between various institutions that are concerned with political, technological, economic, social and cultural aspects of society. The collaboration among such a set of institutions has never been a common phenomenon. On the other hand, there has been an evolving collaborative relationship between government and business. These evolving relationships appeared during three transformation periods in the US: the 184Os-1850s; the 1930s; and the 1970s. In the 184Os, the state and local governments offered loans or grants to railroad and canal companies and later invested in their stock. Subsequent bankruptcies discredited many of the early arrangements. In the 185Os, the Federal government subsidized the railroad industry through land grants, loan guarantees, and mailcarrying contracts, and even went so far as to sponsor private corporations, e.g., the Union Pacific Railroad Corporation. The Reconstruction Finance Corporation (RPC) was created in 1932 to stimulate industries during the depression. During World War II, it played an important role in the development of the aluminum, steel and synthetic rubber industries. The Tennessee Valley Authority (TVA) was created to serve multiple federal policy goals - flood control, navigation, hydro-electric power, and experimentation in regional economic planning. The 1970s saw the rise of a number of government-sponsored financial services
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macroprojects, such as the Federal National Mortgage Association (or Fannie Mae) and the Student Loan Marketing Association (Sallie Mae). Each of these institutions involves over $5 billion. Today each is a private corporation after being originally federally chartered. Among the recent technology-based macro-engineering projects that have been joint-ventured by the Federal government are: (1) COMSAT Corporation and (2) the Synthetic Fuels Corporation. Of these, only COMSAT Corporation can be considered a successful large-scale joint technology venture. From its beginning, the major problem has been transferring the capability of a global communication system, once it was technologically developed by the government, to the private sector, while maintaining global scientific and economic preeminence in a specific time period. COMSAT’s success was due to three factors: (1) it was tied to achieving national goals; (2) the technology was ready to be transferred; and (3) innovative private technology venturing institutional structural arrangements were promulgated. Specifically, in the early 196Os, when there was not a private industry technologically competent to develop a global communication system, the compromise was reached for 50% of the initial stock issue in COMSAT to be subscribed to by the leading international carriers and 50% by the general public. Since it was a Congressionally chartered corporation, each class of equity shareholders elected six members each of the board, and the President of the US appointed three additional members to represent the public. The Synthetic Fuels Corporation (SFC) is generally recognized as an unsuccessful enterprise. Unlike COMSAT, the SFC’s initial financing of $20 billion came from the Federal government. The Synthetic Fuels Corporation is managed by a sevenmember bipartisan board of directors appointed by the President of the United States for staggered seven-year terms. Structuring the governance of macro-engineering projects as technology venturing can make a decided difference in their success. It is perhaps more important than looking at how the projects themselves were managed or financed. Structure reflects institutional relationships, responsibility and requirements for risk-taking and sharing. The structure directly affects the way large-scale programs or projects are to be financed and managed. The Traditional Mode Federal priorities and funding for macro-engineering are still in the traditional mode. That means that Defense projects and other national comprehensive security-related projects are looked upon as filling government needs. The success of the project is to rely on competitive forces; companies bid on the project. The successful bidder is not expected to coordinate a cohesive and coherent program that allows for research, generic technology, and product development. This is usually left to the Department of Defense weapon system management. DOD is thus traditionally responsible for transferring technology developed by federal funds. Individual firms have more often considered their own technology to be a
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accidental. They can have a catalytic impact and cause reactions far beyond their immediate location within the state. Very often these impacts are national and international in scope, It is worth taking a look at some of the specifics of technology venturing in the state government, private business, and academic areas. The response of the sectors can be characterized in five program areas: (1) policy developments; (2) education, training and employment; (3) linking university/industry research; (4) technical and management support; and (5) economic support and incentives. Policy Developments There has been a great deal of activity in 27 state capitols in the policy development areas. Over 94% of the total federal R&D funds are expended in these states. The governors of these states have appointed special advisory groups with the charge to analyze and report on the states’ capabilities and needs. They are also charged to recommend programmatic solutions to promote research and development as well as industrial expansion. These task forces are generally referred to as high technology or science and technology task forces. For example, Massachusetts has created a State Technology park Corporation to establish a statewide network of facilities. The first one so installed is a $40 million Massachusetts Microelectronic Center. Half of the funding will be state source and the balance by a consortium of companies and academia. Education, Training and Employment A number of states have begun to address the problem posed to strengthen elementary and secondary education. State policy and planning advisory groups are being set up to meet broadly determined needs of schools. Thirty-three states have programs of “customized job training” to meet the needs of specific industries. An example is Missouri’s new General Motors Training Program. This is a cooperative effort of the state, GM, and the United Auto Workers to train workers in robotics and related technology skill areas for the opening of a new GM assembly plant. It is hoped that, ultimately, some 2,000 hourly workers will be trained as technicians to operate this plant. Several states are earmarking higher education as a high priority in achieving high technology parity. At Arizona State University, for instance, a new Center for Excellence in Engineering is under development to support education and research in numerous high technology disciplines. The Center, founded by a combination of sources from the state government and the private sector for a total of $33 million, is scheduled for completion this year. Lin Ring University/Industry Research In 1983 alone, industry spent some $300 million on scientific and technical R&D in academic institutions and libraries. Although this figure is small compared to the .$7 billion government funding of academic research, it does represent a fourfold
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growth over the past decade. There is also an increasingly evident role of the state government becoming involved with industry in joint funding of new research facilities. In 1980, 74% of all business support for university research came from just five major industries: gas and oil; chemicals; electrical machinery; food, beverages and tobacco; and pharmaceuticals. Another concept of great resource value to high technology growth is research parks. With their well-integrated clusters of industry/university linkage, research parks either exist or are in some stage of planning and development in 18 states. Tecbnicai and Management Support
Focused heavily toward small businesses within the states, these programs provide effective avenues for firms to deal with the possible trauma of commercialization of technologies into the public sector. “Innovation Centers” have become increasingly popular as tools of both states and academic centers to provide management and technical assistance to small technology based businesses. Research incubators are another promising tool being employed by the states to provide a suitable environment for “hatching” new spinoff applications of high technology ventures. To the innovation programs and research incubators, a number of states have also established training and support programs for entrepreneurial development, feeling that this is one of the most critical areas in promoting technology commercialization. The last program cited in the NGA report is that of economic support and incentives. Economic Support and Incentives
A number of states are now developing special initiatives, such as tax incentives, enterprise zones, research and industrial parks, and direct financial assistance in the form of low interest bank loans and loan guarantees to fulfill the start-up capital needs of new technology firms. One area of concentrated interest is state support and implementation of private venture capital sources for small technology firms. Given the high risk and generally long-term payback time of typical venture capital investments, firms with less than $500,000 “start-up needs” are not attractive investment targets for the private market. A fine example of state involvement in this area is the Massachusetts Technology Development Corporation. Operating both as a public agency and non-profit corporation since 1979, the MTDC has invested $3.4 million of its own funds into 20 individual firms. More dramatically, it has used these investments to leverage more than 522 million in private sector money to these same companies. A creative approach was taken by the Michigan Legislature in 1982, permitting the use of Michigan State Retirement Funds to be used as a venture capital base for equity investment in Michigan high technology firms. The estimated value of these venture funds is $350 million. Since 1981, there have been a series of private-corporation joint research efforts,
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The pioneering institutions, such as Semiconductor Research Corporation (SRC), Council for Chemical Research (CCR), Center for Advanced Television Studies (CATS), and Microelectronic and Computer Technology Corporation (MCC) are favored by the current Administration and Congress. The obstacle to such consortia in the past has been ambiguous legal status under the antitrust laws that would entail the risk of huge penalties. The passage of the Cooperative Research & Development Act of 1984in October 1984has done much to alleviate the legal concerns. One result of the passage of this act is likely to be a proliferation of large-scale R&D consortia. Already there are a number of consortia being considered. Among them are : 0
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Military Software Productivity Consortium-TRW, Lockheed, Boeing, Rockwell and seven other defense contractors are considering new ways to produce computer programs and other software techniques for military applications Fiber optics - Battelle is trying to put together a 20-company consortium to develop components to tie together fiber optic networks, high-speed communication systems. Allied Corporation, 3-M and AMP, Inc., have already joined. Other consortia are being considered for the energy, steel, machine tools, airframe, and auto engines industries.
The drivers behind these newer consortia are: (1) increasing foreign competition; (2) shortages of highly trained scientists and engineers; (3) difficulty in keeping up to date with developments; (4) gap in new technology transfer, especially when it requires pulling together basic research from different disciplines; (5) a need to fill the gap for diffusion of technology for developing useful commercial products and services by individual companies; (6) a desire to foster more basic research in universities; and (7) a determination to diffuse R&D activities across wider geographic areas. Biotechnology is an example of an important, emerging industry. No US R&D consortia, however, have emerged to compete with the recently formed $100 million, seven-year Japanese consortium in this area. Most US biotechnology research is being conducted by individual firms or by establishing universitycorporate relations. Some of the more recent start-up biotechnology companies have had as equity shareholders other major firms in energy, drugs and agriculture. Newer institutional structures are emerging in the “megabuilding business .” These structures include other domestic and foreign support and process companies as well as domestic and foreign governments. Innovative financing is required that pulls together banks, institutional investors, government financial export credit agencies, and international development organizations, such as the World Bank and IMF. In addition, megabuilding institutions are required to make their own investments in the projects, carry on basic, generic and engineering research, as well as keep up with technological advances in new materials, products and processes. Their marketing strategy includes more than competitive winning of
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contracts. It involves the ability to do longer-range planning and forecasting of markets as well as generate new businesses based on customer hnancial commercialsize demo plants. In summary, there are various emerging institutional responses to large-scale technology venturing. There is a more favorable climate for macro-engineering programs and projects today than there has been since the l%Ns. Whether these programs and projects really achieve their full potential depends on the next steps to technology venturing. The Next Steps It is necessary at this point to pull together the strategic implications and institutional responses so that technology venturing for large-scale programs and projects can go forward. Strategically, at this point in time, transformation better describes the changing nature of the economy and society than transition. The world today is hypercompetitive- a world in which a new economy is emerging as a result of intense domestic as well as fierce global competition. The competition is between states, cities, universities and colleges, industries, and sizes of businesses, as well as between highly industrialized foreign nations. The competition is taking the form of a worldwide, scientific, technological and economic race for preeminence- scientifically, technologically and economically. As a result of this hypercompetition, newer institutional responses are emerging and shaping the direction of the macro-engineering field. These newer approaches are referred to here as technology venturing. Technology venturing is an entrepreneurial process by which major institutions take and share risk in integrating and commercializing scientific research and various technologies. It is a primary means of generating innovative products and services of economic value. To compete effectively in the global economic arena, it is necessary to find creative and innovative ways to link public sector initiatives and private sector resources for large-scale projects. What enuepreneurship does for small business, technology venturing can do for macro-engineering efforts. Technology venturing is an integrative process. It incorporates a dynamic private sector; a creative role for government through federal, state and local technology policies, initiatives and development programs; and newer academic relationships. It fosters corporate and community collaborative efforts, while nuturing positive government /academic/ business relationships. Several major problems arise because of domestic hypercompetition, such as: l
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International competition unintentionally dissipates institutional resources. As a society, it may not be possible to react in time to take appropriate actions for meeting external global competition. University scholars may be deterimentally diverted from the basic function of educating the new breed of creative and innovative leaders, especially in macro-engineering.
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Domestic competition 0 0 0 0
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Between states for limited federal and private resources. Between cities for limited tax dollars for unnecessary duplication of public facilities and infrastructure. Between research universities and colleges for limited faculty and graduate students. Between corporations and capital ventures and universities and colleges for limited research resources required for teaching and industrial growth. Between universities for federal research funds that result in maintaining the status po. Between scientific preeminence and economic preeminence which result in an imbalance between longer term needs of the American society.
To meet international hypercompetition, it would not be wise to stop at defining or establishing requirements for employment and economic growth as were pointed out in the institutional responses by the state governments and R&D consortia. It is necessary to participate in and provide response to the following emerging trends in technology venturing: 0 0 0 0
Removing regulatory barriers to innovation and increased productivity. More incentives for macro-engineering R&D, manufacturing investments, and infrastructure developments in transportation and the quality of life. Clarifying limits for operation of large-scale programs and projects. Modification of antitrust laws to allow a broader range of collaborations among US companies, governments and universities.
In other words, business, government, academic, and other leaders must create the conditions for the creative and innovative application of resources and economic wealth, which reflect a collaborative process, rather than a go-it-alone approach. Future Directions In a real sense, macro-engineering is still a pioneering task, much like that of the early explorers who sought to discover their environment. Those who are interested should proceed with imagination, hope and daring to chart the direction of macroengineering. In this task, as in earlier explorations, the map of this previously uncharted territory will leave much to the imagination. Critical specific needs for macro-engineering must be initiated on a national basis now. Among these are: l
Advancement of the purposes of The American Society for Macro-Engineering (TASME). The Society is a private, non-profit organization concerned with the critical issues related to the development of macro-engineering projects, programs and systems, such as planned cities, industrial complexes, energy projects, regional development projects, outer space programs, and
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other enterprises requiring capital investment ranging from hundreds of millions to billions of dollars. Currently the Board of Directors of TASME is in the process of establishing lines of communication with other macro-engineering groups throughout the world. They have begun the initial planning for a landmark International Conference on Macro-Engineering in March 1986. The Board now believes that a substantive international conference can be organized every two years. 0
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Establishment of a large-scale project research institute, consisting of a consortium of universities to study large-scale engineering-management programs and projects. Identification of a National Technology Agenda. As society becomes adjusted to the new global economy, barriers, limitations and problems must be identified to delineate the role of technology. Some of the more specific concerns take a worldwide perspective. Assurance that spinoff opportunities from macro-engineering programs become major large-scale projects. This includes, in the case of government programs, the transfer of technology to the private sector. Establishment of research projects in universities that seek better solutions to public infrastructure and water problems. This includes such special projects as new materials and techniques to reduce costs and improve the effectiveness of maintenance programs as well as construction and operations. Enhancement of private-public technology venturing activities and opportunities. This includes better ways of mitigating unforeseen externalities, as well as risk-taking mechanisms and risk-sharing approaches. Transformation of educational and institutional structures to meet emerging macro-engineering needs.
Transformational management is the process of moving from one state and level of activity and commitment to another. It requires a focus on higher aspirations and longer-range views that not only benefit individual firms and corporations, but at the same time help provide for the general welfare. Transformational management is focused on social consciousness, as well as on decision-making. It deals with monitoring, delineating and clarifying the possibilities for business success in conjunction with the hopes for a better societal future. It consists of persuading people and organizations to willingly undertake the challenges of transforming dreams into realities. Society today faces a great watershed in the advancement of macro-engineering. Just as those who previously needed to harness the strength of will, experience, daring, knowledge and foresight to start major programs and projects, so the members of TASME must become the modern founders of new American macro-engineering efforts that will serve generations to come. Note 1. RobertLawrence Kuhn, l984), p. 94.
cd.. Commercirrti~g Defense R&ted
Techo/ogy (New York: Pracgcr Publishers,