CNNMoney: Getting Innovation Out of the Lab at Xerox

Author: John Fortt, CNNMoney

Xerox (XRX) PARC has come a long way. A generation ago, the Palo Alto Research Center famously developed many of the technologies that led to modern PCs from folks like Apple (AAPL) and Dell (DELL), but never got them beyond the lab. Today the unit is determined to get its inventions out of the lab, even if it means sacrificing secrecy.

To underscore that point, the company's normally secretive Silicon Valley researchers and their colleagues from around the world held an open house this week to show off surprising projects they're developing. Among them: A blood scanner that uses a twist on laser printing technology to spot rogue cells, a type of paper that can be erased by ultraviolet light and reused, and a new hybrid plastic that's partly made of corn and grass.

I sat down with Chief Technology Officer Sophie Vandebroek after the demonstrations to talk about how she manages the tough trade-offs in Xerox's technology development –- building versus buying, managing risk and partnering up with other companies. Here's as edited transcript of our conversation.

Companies that I've talked to in Silicon Valley are all talking about "technology transfer" — how to get ideas out of the lab and into products. A lot of it seems to come down to minimizing the risk associated with spending R&D dollars, making sure they don't go to waste.

If you do research, in the explore phase, they won't all become commercial successes.

Right, right, by nature. So PARC is now doing more consulting work, and that's kind of a risk hedge — you know you're going to get paid for that. Why is that model better than the models that a lot of other folks are adopting, and how can you be sure you're taking big enough risks to get a big payoff down the road?

When a project doesn't have risk, I don't want to do it in research. It goes into the business groups directly. A corporation has research centers to make sure that we do the most risky projects. Whether it's the smart document technologies, or some of the clean tech opportunities, or even reusable paper, if they succeed there's potentially a great reward. So there's a portfolio of smaller projects that are high risk, but also high return if they're really successful. So on a yearly basis, and sometimes even faster if we have breakthroughs, we will grow some of these projects into what we call incubation programs. We scale them up as much as ten times, to make sure that we invest enough.

But often the really big, game-changing research projects don't fit well into a formula, because either they don't fit into an existing business that you have.

Yeah, that's more challenging.

So I imagine a big part of your job, in positioning Xerox to be successful in the next decade, is making sure there's a good chance that you've got one or two of those. What do you do with those projects that might be a threat to the way the organization runs today?

There are those projects. What we do then is we find an open innovation partner. We have to go to market either with a partner, or do what PARC has done several times and incubate a new company. We can also look for a startup, where we can contribute some of our intellectual property to that startup in return for equity in the company.

If you're going to radically grow your business, it's going to come either from risky projects or acquisitions. So are you more involved in the merger and acquisition process now than a CTO might have been five years ago?

I would say for sure. Definitely.

Why is that important?

I'm involved in two different ways. One way is, we see this company, it looks really great, can you assess the technology? Just kind of asking my advice. Hand in hand with that would be looking at our research and saying, OK, which partners are still missing? So what do we recommend to the business teams either as partners in the go-to-market solution, or are there some technology elements we might be interested in acquiring so we can do something disruptive? We're always scoping out the technology landscape to see what other smaller companies are doing that could make them acquisition targets, and what are large companies doing that could make them partners.