ENGINEERING, DESIGN, AND PROCESS DEVELOPMENT
Last month w e introduced the subject of Avoiding the Pitfalls in Commercial Chemical Development with the story of how Celanese successfully organizes and operates its development programs. This month w e present something quite different. Mr. Kropa’s discussion of the game theory of development i s an analogy-one which puts across a message. We are sure that our readers, no matter in what field of chemistry or chemical engineering they may be engaged, will find this not only instructive, but quite entertaining. Next month the card game analogy will be continued by Carl Pacifico, whose theme will be “The Courage to Quit.” Accompanying this will be two actual case histories of projects which companies had the courage to terminate.
Game Theory in Development E. L. KROPA Baftelle Memorial Insfifufe, 505 King Ave., Columbus I , Ohio
D
URING the Revolutionary K a r , King George I11 wrote a
letter to the Emperor of China, Ch’ien Lung, proposing t h a t t h e two potentates enter into a commercial and diplomatic relationship with one another. Emperor Lung was stated t o have replied, “Our ceremonies and code of l a x differ so conipletely froin your ov-n t h a t , even if your envoy were able to acquire the rudiments of our civilization, you could not possibly transplant our manner and customs t o your alien soil.” History does not record the exact response t h a t King George niac!e to this reply, but, inasmuch a s it is knon-ii t h a t he becanie mad periodically, any response n-ould have been a perfectly nntiir:il one. Know-how and development are basic in any corporate structure
It is appropriate t o keep this viewpoint in mind in considering knon--how and development. KhiIe both are abstract terms. they form part of the organized function of any corporate striicture. T h e y are p a r t of t h e innate phase of t h e operation of any company, and, merely because one set of rules n-orlrs well for one organization, it does not necessarily f o l l o ~t h a t tliic w n of groiind rules can be t:iken over b y :in entirely different corporate entity, a n y more than a series of glands c:tn be transplanted from one organism t o another ant1 l x rqiet.tetl t o fiuiction as eficiently. Know-how is a relatively new term which h a ? eiitereci into the language. ;\t one time know-how concerned itself rvitli the technical l i d o surrounding a patented procediire. I’xteiits inay be granted 011 miy stage of coinniercializatioii: one can secure legal coverage for reactions t h a t have been c:irried oilt in rest tubes or in tank cars. Because patents coiild he granted 011 information t h a t w:is not a sufficient basis for inimediate w t n nierrial maniif:ic.ture, a body of knowledge that ir-oiiltl amplify the patpnt came into existence. These technical data on specific procedures, r\-liich complemented the procedures disclosed iii t h c patent, became k n o ~ v n as “know-!ion-.” B e c a l m this !mor\--
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ho\v \\-:isentangled with a patented operation. thil disclowre of knoii -how had legal significance. . i i i entirelj- ncii- situation aro.se. however, where know-how \ v : ~sold, hnt no patent K R S involved. In other m r d s , one removed the sitbstaiicr and dealt with the halo. Know-how inay be lirpt secret, sold, transferred, given aim?-, or acquired :is spoil. of n-nr. Oiie can eel1 techniqiies and procedures enabliiig ai1J-oiie t o nianufactiire a commodity. b u t unless patented proccdurri are involved, there is 110 recourse to the courts if obligations arf not met. In either sense, with or without a patpiit, l;no\v-hon- coniprises t h a t phase of the opcrution which allon.; thc’ product t o move from the inventive lahoi,:itory stage to c~oninic~i~*inl plant maiiiifacture. Ilrvelopineut i i a term used for that seyuenw of steps n.1ric.h is nec.ewii.y t o allow :I product to hc manufartiired on R 1:irge scnle. Gencixil>- i t nie:im pi,e-pi!ot plaiit, pilot plant, rind ~ e m i v o r k ~ . Thcrc.f‘orc, fioiii the stmdpoint of operation, kno\\--lioiv and devc~lopnientmean aimlit the same thing. The tii!i‘ercric*e,if there is :iii>.. :iriie,q i n i~ec.ogriizingthat tlevelopiiient iiiiplirs a n autovat:ilyzecl stcp for one‘s o\vn exclusive benefit. where:is kno\\--honsiiggests tnat it 111:iy Iwcorne alien either tliroiig!i ~iiirrhnseo r tllroi:gll m I P , 01ic : i s p c t of dr.relopnient may be coniiderril t o he . p o n y iiio~i:;with gron-th. T h e study of the rate of inwmse of the groirtli of a corporate structure is primarily a fiinction of t h e prrsiderit and the board of directors. Each corpornte i i n i t is in contiiiuoiis adaptation n-ith its environment with resprct to the products of its manufacture and the response of its ci!stoniers. There is a ceaseless change t o keep these items in eq~.lililiriimi, S o attempt i j niade in this discussion t o give :L bl’ipprixt of the pattern \\-hich corporations and boards of directors rice(: to follow in the erpmsion of their corporate entity. Major eriiphasis is directed, horvever, to a study oE t h e stages of grorrth that are utilized by different organizations and t h e rcsiiltP when diverse groups c,oniliiiie their talents to form 3 n e w t:-;ie of corporate ?trllc’tl IIT.
INDUSTRIAL A N D E N G I N E E R I N G C H E M I S T R Y
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ENGINEERING, DESIGN, AND PROCESS DEVELOPMENT There i s a relationship between games of chance and games of business
Sizable literature has evolved on the relationship between the strategy of such games as chess, bridge, and poker and the complex situations t h a t arise in economics, society, politics, and the militarv. T h e parallelism arises from the fact t h a t a combination of strategy and chance, or a combination of intelligence and skill, is enconntered as opposed t o a random choice. Such prototype games can be considered t o be watered-down versions of the real games t h a t exist in business and in war. This oversimplification of a theory is one of the major techniques of science. Chemists and chemical engineers can appreciate this relationship between the games of chance and the games of business because they are often dealing with an isomorphous situation Generally their “game” consists in making marks on paper. Two-dimensional formulas on paper are made t o serve as imperfect replicas of atoms in space. It is not too difficult to move from such games to game theory, where different businesses can be viened as being engaged in the playing of different games of chance. I n any case, development would be one of the operating rules of the game Using this concept, various games n o d d possess differing developmental tactics. Ground rules cannot be transferred easily between different operations
One aspect of the theory of games involves the niatheinatical approach t o economics. l\Iathematical symbolism is, in this instance, transferred from mechanics t o economicp. The mechanical aspects of r i n n i n g or losing in a game involve a complex function of moves and countermoves by the player and his opponent. One object of the theory is to determine success or failure! within the confines of the rules of the game, even though the player has to imagine himaelf in the role of his own opponent in order to see what moves he might make initially. This aspect of the theory of games might be called the deductive approach. I n this treatment the result of the game is discovered from the coneiderations of the rules involved in each particular case. Another aspect of game theory might be considered as involving the inductive approach, or as a type of comparative anatomy of business strategy. Here, the knowledge of any one game gives an insight into the strategy of other games where the ground rules are different. Properly interpreted, a knowledge of the composite ground rules of various games might yield a new approach to business riiethodolog:,, in the saine niannrr t h a t inductive thinking j-ields new Ian-s from the consideration of cases and rules of procedure. This approach can be illustrated in the comparison of business with ordinary games. Suppose we have a business t h a t involves playing a certain type of game-for example, tiddlywinks. It is not a glamorous game, b u t it nets the operetor a fair return on a moderate investment of time and money. Inasmuch as the businessman has played this game for a number of years, he has developed an ninazing facility and can score a t mill. S o t only is he v-ell verscd in the techniques of the game, but, he is SO sensitized to the various aspects of play t h a t he can estimate, from clues t h a t n-oiild not be discciuible t,o an outsider, the success that his neighbor has in playing this same game in an ndjaceiit r o o n . H e can detect whether his associate is winning or losing or whether he himself is up to par. Having learned this game, he would remain perfectly contented, brit unfortunately there are any number of circiimstances that can destroy his sense of calm. H e may read in The W a l l Street Joirrizal ahoiit returns being made from some other ganie, which employs rules different from those of tiddlywinks. R e n-onders whether he should not t r y his o w i hand a t some other venture. Moreover, he detects a slight decrease in marginal
March 1956
return in his own game. While this decrease does not result from a loss of skill on his part, he believes t h a t something should be done to give him a greater return Thus, his thoughts turn t o the possibility of sweetening his margin through diversification. While traveling on a Pullman he meets another individual who is expert in quite another field of endeavor-poker. He has heard of this game, and h e has aim-ays associated, in his mind, t h e fact t h a t from poker one can secure truly fabulous returns. This game appeals t o him because i t is the type of game t h a t yields a larger return, and may point out one direction in R-hich he should move. T h e stranger is perfectly milling for him t o join in the game, and, with some hesitation on his part, the tiddlyn ink player decides t h a t he will participate through investment Unfortunately, he soon finds t h a t the rules of tiddlywinks are not of much value in playing poker. Once he sits d o v n to the game, he wishes to play with the chips ( a t least he recognizes the pieces as something with which he is familiar), but he is told, quite definitively, t h a t he is under a misapprehension ; this game is played with cards. H e proceeds to have some internal qualms, b u t swallovs his pride and picks u p his five cards and immediately protests that each one is different. I n the game with which he is familiar, all elements have the same appearance. Every effort t o learn the game, on the basis of his o m past experience in tiddlywinks, brings him to even greater difficulty. H e is like a ship on an open sea with no one on board who can understand the rules of navigation. Naturally, the poker players, seeing the incompetence and discomfiture of the tiddlywinks player, decide that, as he does not seem t o catch on very quickly, the business of tiddlyxinks must, of necessity, be a rather simple game. Suppose, on the other hand, v e thrust the poker players into a tiddlyxink game. They would be in difficulty if they tried to apply the rules and skills they learned in poker. Game principles apply equally to the business world
Change the stage setting t o the business n-orld: X distributor has built up a large business b y what seems t o him a rather inglorious approach involving the absorption of smaller conipetitors. His business is based primarily on packaging and distribution. Through long experience in t,he game, he has acquired a number of strategies, one of which yields him a modest return. H e has found that, after absorbing one of his competitors, he can dispense with the top management t h a t he has purchased and use primarily the packaging and distribution aspects of the business. His own business management is familiar with the rules of the game, and, with a clerk here and there, he can carry out at least aa effectively the conjoint business of his own and t h e one he absorbed. His knowledge of the game has allowed him t o absorb one after another of his competitors, building himself a modest empire in packaging and distribution. T h e discarded managements were not too unhappy, a s in most instances they received a fair return for their investment. Occasionally, in these acquired companies, he found an uniisual executive or organizer who was incorporated into the parent organization. His own public relations staff saw to i t t h a t this individual was given the appropriate build-up, implying that the parent organization was most solicitous of neli-ly acqnired management. Obviously, little publicity was given in the case of the discarded managements. While traveling on a Pullman, the distributor meets n chemical nianufacturer. H e has noted that, in the food manufacturing bwiness, there is a greater use of plastic containers and, in discussing the returns of the plastic business, he finds t h a t the margins are far greater than his own. H e decides then and there t h a t the plastic business is one in v-hich he should participate for a number of reasons; the most desirable of these would be
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ENGINEERING. DESIGN, AND PROCESS DEVELOPMENT that he might, through this endeavor, improve his margin of profit. There is no need t o desciibe the discomfiture of this businessman, when he failed-the same thing n-ould happen t o any business man who tried t o apply his operating rules to an alien business. T h e tactics which a t one time brought results yield only grief under other situations. Monopoly and competition: operating rules are very different
Generalizing, there are probably t v o extremes in business as far as game theory is concerned. One extreme tends t o be a monopolistic control; the other a highly competitive one. T h e former might be compared to a spear and the latter to an umbrella; an umbrella can be used, under duress, as a weapon, but the spear is useless in the m-rong environment. T h e 1110nopolistic type of business activity involves restrict,ed production yielding a high margin, b u t paying for this high return with high risk and a quick obsolescence of the tools of production. Competition, when it does occur, is usually between industries. The emphasis is on skill in production. This monopolistic tendency is also characterized b y reasonably high research activity leading t o new markets, particularly captive ones. Every effort is made in this new product area to rover t.he new developments TJ-ith patents. In general, rather large capitalization is required for any new activity, b u t a t t h e same time this high capitalization offers an impediment for any outsider entering into the area. Still another barrier is t h e patent one, and efforts are directed to keeping competition on the other side of the fence. T h e operating rule appears t o be t h a t the price remains constant but the technology continually changes. T h e highly competitive or umbrella type of activity usually involves uninhibited production, generally a t a low margin, with a low risk and a relatively lorn rate of obsolescence. T h e markets are usually open, and little effort is directed toll-ard establishing new markets or n e x products. T h e emphasis is on sales rather than o n production. Whereas, in the first case, a large capitalization may be needed for new equipment, sonietinies with a ratio of two dollars’ worth of equipment for every dollar’s worth of business, this more competitive operation reqiiires more modest capitalization per sales dollar return. The ratio can be 1 t o 1 or even less. S o great effort is direvted to uncovering ncnpatents, and, where patent position threatens, the position is usually a defensive one. Whereas, in the monopolistic sense, individuals can set the price charged for products, in the competitive umbrella type of operation the price is set by the marginal producers. T h e situation here is identical t o the one described by th omist Ricardo; where coiiipet,ition is unrestrained, mnnufacturers will increase production xnt,il i t ceases to be profitable. .4 parallel can be drawn with a farmer and fertilizer-that is, he will keep on adding fertilizer t o t h e point where, if he were t o add a little more, t h e slight increase in production n-ould no more than pay for this increased expense. I n a business poised EO clove t o the borderline, price mars are not uncommon. I n parallel with the other case, in this instance technology reniains constant, b u t the price changes to establish equilibrium. Because there is no major technological obsolescence after a price war, the product remains constant, and, after a siege of price cutting, t h e old material is re-established on t h e market a t about t h e saiiie marginal price. Position of research varies i n monopoly or competition
As indicated, the monopolistic type of business would be heavily supplemented with research directed toward new products, whereas the Competitive type would involve little or no
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research, with an attempt t o inairitain the status quo. T h e growth in the first instance would be essentially built in; where outside purchases were made, they would be designed for diversification. T h e gron-th in the second type of game would be directed t o a similar type of industry. Because of the large and expensive equipment necessary in the spear game, the stockholders are continually being placed in a situation where, if the company is going t o grow, they must be prepared t o invest larger and larger funds, especially where the grolvth is rapid. From the viev-point of the man on the curbstone, the activity of the umbrella type of operation can be followed because the evidences of lack of equilibrium ilia>-be discerned in price adjustments. I n the spear situation the game is played in secret deep in the laboratories by technologists who direct their attention t o the creation of new products in order to secure patent protection to keep the company in t,he forefront. I n the umbrella type, technologists may be seen, but they rarely are permitted t o take the bit in their teeth and develop something newy. Such a n a h v i t y would bordei, on heresy in this particular system, Sales cannot be an all-purpose approach
T h e differences in niarketiiig for a spear type of organizition as contrasted t o the umbrella variety may be illustrated by coinparing the techniques used in the selling of chemicals and plastic materials. Superficially one might surmise t h a t a group selling chemicals could also handle ssles of resinous products. Both are plainly defined areas. \There efforts have been made t o use a single sales group on an all-purpose basis, major problems usually develop. Analysis indicates t h a t one instance covers a type of chemistry involviiig distribution of molecular speciest h a t is, a type of statistical chemist,ry--nhereas the other utilizes a single species. .1. simple compoiind may be maniifactured by a number of different chemical firms, and, while there may be slight differences in purity and in minor specifications, the product is fundamentally the same. Such ingredients as methanol, ammonia, phenol, urpa. styrene, and phthalic anhydride are reasonably uniforni in quality and in purit>-. IThcn these s:me r i ~ materials, hoivever, :ire tiirried into moderate or high molecular weight derivatives, a different sitiiatioii rcsiilts. During the lo^ t o a high polymer, the stutistical transformation from t>Te of chemical operation is approached. This means t h a t the product as mmufactured is literall>- and actually different. IIoreover, there are situations where the same formula made in different equipment may result iri changed phgsic*al charactcristics. There is a rorollary arisirig from the ease of trarisformntion in such a statistical product: It is possible, b y riiirior distribution changes, t o produce u material t o meet each custoiner’s specification. For example, suppose an ortho isomer is being sold and the custorriw \\-ishes to purrhave a nieta or para dprivative. T o satisfy his demand, major changes would have to be made in t,he manufacturing operation. On the other hand, where the viscosity of a product is not within the customer’s liking, arising from an ortho-para relationship, no great modification is required by the manufacturer to change the plasticity to meet the exacting requirements of the customer. This nicety of feedback between the i;ale.~nianand the customer, allowing for changes t o occur in the production unit, has perniitted the plastics industry t o make whatever changes are necessary t o gain customer acceptance. It is not xithout it,s difficulties. The ease x i t h which new formulatioris can be spawned for specific requirements has resulted in hundreds of formulations with the attendant inventory headaches. h different responsibility falls upon the salesman if a simple chemical is being handled. A number of calls can be niade in a single day. On the other hand, the salesman who is handling a resinous material must be in a position t o act as a technical aid
INDUSTRIAL AND ENGINEERING CHEMISTRY
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ENGINEERING, DESIGN, AND PROCESS DEVELOPMENT t o the customer arid recognize the modifications which can or cannot be made by the plant. V h e r e difficulties arise, he must stay on the job until the customer is satisfied or until he can mmnion help from the laboratory. I n the former instance 3 salesman niay be able t o niake five calls a d a y ; in the second venture he may be required t o spend several days on a single call. Incentive compensation introduces a number of problems into a sales organization. Where the incentive return niay account for a major portion of a salary received by the individual, a number of disturbing factors may arise. If a bonus depends on selling a certain quantity of material, potential collusion niay arise between the salesman and the buyer. T h e salesman, t o be certain t h a t he can secure his bonus, may induce his customers purposely to overstock beyond their immediate requirements. T h e sale is made, and the salesman secures his bonus, h u t a t some future time, a portion of this merchandise niay be returned, perhaps as damaged goods. Under such circumstances, the efficiency of a salesman should be measured not b y the materials he sells, h u t by how effective he is in not having goods returned to the warehouse. In the chemical industry, return on risks can be secured within patent lifetime
I n the chemical industry it takes from 5 to 10 years t o launch a new product. This elapsed time covers not only discovering the ne17 material, b u t also manufacturing the product on a small scale and learning the intricacies of production. This time also encompasses effort needed to establish markets, and t o sell the product. With a 17-year lifetime on the product, process, or use, i t is possible t o secure a return on the risk during the lifetime of t h e patent. I n the food and metal industries, i t generally takes a s long a s 20 pears to learn to make a new material and t o establish markets. [:sing the same stricture of patent lifetime, the patent has expired long before the return has been secured on the initial risk. At the stage where royalties might be secured, any patents n-odd have expired, and competition can enter without paying a similar tariff. T h e reverse situation occurs in the drug field, \There a product can be originated, utilized, and become obsolete while the disclosure is being proressed in the Patent Office. If the lifetime of a product is too short, a return cannot be secured through royalties or by keeping interlopers out of the business. It is not improbable that the great growth of the chemical industry can be a t least parti>-attributable t o the integration betneen the time of product development and the protection secured from the Patent Office.
Table 1. Company and Year Chemical 195X 195Y 1952
Research and development must lead to manufacture of new products
Information concerning the future objective8 of a concern must be gathered indirectly. S o Organization \Tishes t o acknowledge t h a t i t possesses built-in iconoclasts or revolutionaries who are capsble of upsetting xell-concv3vcd programs. Severthcless, it follows that, unless research and development eventiially lead t o the preparation and mmufucture of products different from those being handled, thf group is not performing its designed function. Suppose we take three firms conducting business in several marketing areas-for example, a chemical firm, a food company, and a petroleum organization. It should be possible to determine, from published accounts of the companies, how they have managed t o play their respective games. For obvious reasons the names of organizations must remain anonymous. For purposes of comparison, however, real numbers are used. T o make the comparison reasonably fair, in each instance t h e largest firm engaged in manufacture was not picked, b u t the firms selected viere reasonably large, had been in operation for a protracted time, and m-ere reasonably in equilibrium LTith their customers. Moreover, i t v a s desirable t o select organizations that were also conducting businesses of about the same order of magnitude, and having sales volumes of about the wnie magnitude. Table I gives net sales and total income for t h e three organizations. If the percentage of income is compared to the total sales, i t is apparent t h a t each business possesses its own indigenous operation. T h e petroleum organization retains on the average, before taxes, about 24y0 of the money i t handles. The cheriiical firm is slightly less efficient,. I n the food firm, the game appears t o be one of smipping dollars, very few of which stick to the hands of those who handle them. Generalizing a t this point, the t\To types of operation defined a t the beginning are being compared under these conditions. I n one instance the technology remains constant b u t the price changes, as opposed t o the type where the price remains constant and the equilibrium is achieved through change in technology. This difference may be observed in the advertising program employed by the firms. One group appeals t o the past; the other t o the future. One emphasizes a product “like grandmother used t o make,” the other possesses the label of the \Yaw of the future. Still another t j p e of activity can be noted-in a chemical operation there exists an almost total lack of advertising t o the public. I n many chemical operations, in dealing with cheniicals, the identity of R product, is lost and fails to appear before the consuming public. In spite of the differences in business activity and return, all organizations emphasize t o the stockholders the importance of
Return of Various Businesses C-
Net Sales ~500,000,000 500,000,000 500,000,000
Total Income
/C
Return
$100,000,000 95,000,000 120,000,000
20.0 19.0 24.0
No. of Patents 36 37 38
Food 195X 195Y 1952
$800,000,000 750,000,000
$57,000,000
7.1
3
47,000,000
11
700,000,000
50,000,000
6.3 7.2
Petroleum 195X 195Y 1952
$750,000,000 700,000,000
$190,000,000 170,000,000
600,000,000
160,000,000
25.3 24.3 26.8
168 200 174
7
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ENGINEERING, DESIGN, AND PROCESS DEVELOPMENT research. If the statements made b y the different organizations were t o he compared, a highly distorted picture might result, because it is not improbable that, in most instances, these releases are prepared b y a public relations group. There is an index, holvever, vhich is far more informative than thc statement8 t h a t appear in the stockholders’ brochures. The effectiveness of research c:in be measured by using inipartial arbitrary standartis-those t h a t h:ive been set u p by the Government in the Patent Office. Patents are in effect options oii the future. Let us see how these three different games utilize these options. During the mine ?‘ears! as judged by Chemical Abstracts, the cheinical firm was an-arded 36, 37, arid 38 patents; the food firm obtained 3, 11, and 7 ; whereas the petroleum firm nianagetl to corrai 168, 200, nnd 17-4. ;\ssuniing, on the average, t h a t it eo $2000 to giiide a specification through the Patent OKke only half of the specifications introduced manage t o SP Eeal of approval, on the average an issued p:Ltent involves :in expenditure of $4000. Agaiii dependirig on the nature of thc industry, t h e odds are t h a t only about one critical csperiiiierit iii ten leads t o a patentable idra on which the attorney will file. T h e infeiencP i.5 that, like an iceberg, for every disclosure which reaches visibility there 3re 10 below the surf:ice. 0 1 1 this La using a factor of 940,000, the clieniical firm has txeii earnx3rk ” !31,$20,000 for ne\\- ideas and the food company $280,000, whereas the petroleum firill has bperi spending $7,200,000 t o help its position during t,he nest two decades, the life of its patents. It is easy t o see, therefore, t h a t the portfolio r c p r ~ s e n t san aspert of planned development. While evidence directed ton.:ird future objectives c m be discerned, it is apparent t h a t a large nuniber of other situations in the organization vould reflect siniilnr differences in the approach t o individual problems. Expenditure for plants, ratio of capitalization to sales, rate of modernization, insurance, and maintenance vould naturally differ. I n effect, all of the3e factors haye been thoroughly integrated arid assimilated as effectively as iii any other type of game. A n-ord might he mentioned Tvitli respect t o technical intelligence. I n playing the gaine every daj-, i t is relatively easy t o understand t h e strategy t h a t is being considered by immediate competitors in related operations. 8imii:ir reactions would be expected from consuiner trends and f r o x the raw material picture. Once the game has been piaycd for a number of years, miniite factors not discernible tu the o?,itider y yield clues to the operating management in the ~ a tlcrg.rit)c,l before in the more conventional game. Sometimes it is t o deduce as much from \\-hat is not said :E froiii ~ 1 i : i t i because the complementary iiiformation ip on hand. F o r this reason an outsitler may be conipletely a t a loss to anderst:ind the meaning of t h e nr.witten rules.
Combination of games requires a n e w set of rules
Thiis far x-e have been considering situations nhere individual games are being played. It n-ill be instructive t o assess oombinations. If \\-e conibine the operation where the technology as coriptnnt and the price changed and one n-here t h e technology changed ant1 tlie price rernxined coilstant, the result may be t h a t the technolog:; ant1 price reiiiain constant Fit11 no means of establishing eqiiilibtiuni. In other words, this situation implies t h a t there is no means by xhich t h e game may be played, and res business in n static situation. Alternatively, n-e can !er technology arid price as changing siniulmneously. I n xortiu, eqiiilibriuin would be established b y both methods. \There such activity has occurred the result can be highly destructive. Sucli :irnphiisioiis warfere fought i l i the surf can be de1nor::lizirig. Let iis be iiiore coiicrete. Suppose rve combiiie a business to \riiich 10 patents :ire issued per year with an organization n-hich receivcs 200. Coriihiiiation would mean an entirely new type of laboratory, arid, if one ainied for a mean b e t w e n the t v o limits, the laboratory n-o!ild be too small for t h e organization with a high rid< 1;attern ;ind much too 1:trge for tlie b!iqi:ie:.e x i t h a low risk return. The Inborntory n-oull be siipplying a number of grolllJS iii the bi!iness. Change in the laboratory size would nieaii niodificatiori of the tleveiopment group, the legal departiiieiits, :tiid puxllict tlevelopmeiit. -4iiother elr~meritshould not he overlooked: 111 cwt:iin areas of lcrioirleiige it is possible to secure 11:rtents niricli mure ecwily than iii others. In an antiquated o,pxatio>i new ideas literally must be quarried. \There the game has been played with rclatively few patcuts in the portfolio, the attit1i:le Ii:u?;t, 11)- definition. be defensive. TT‘here a large nnmher of patents nre availab!c, howex-er, (!?:lis c:in aln-:iyr I)r in:$(leill est~haiipi~ig rights from oiie field for d u e in siiother. But let us go back t o the n~anin the l’iilinian. TVe left him frustratc:i trying t o co:iibi:ie the toiiches of ~ m k e rand tiddlyn h k s , using the rules developed for one, : ~ n d tramplanting nianrirrb and vustoins to uii alien soil. The most horreiitious situation nhich might, tie strategy of tlie biikiess i n strategj- of the riew biii;i;ies which he puichtieed, nncl try t o seciire the mean bctn-een tlie t x o . If he i p n-ell arljnstetl, he will hire mid back those individuals who are well versed in the game. He \vi11 tell them Tyhat, he wants done, and not trj- to tell them 1 1 0 n to do it. RECEIVED f o r rcvien- S o v u i n b e r 4 , 19.55,
ACCEPTEDJanuary 3 , 1356. Division of ChPniical lIarketing and Economics. Symposium on Avoiding the I’itfulla in Coinn:ercial Development, 128th l l e e t i n g , ACS, Minnespolia, lilinn., ?epreriilier 19a.5.
END OF ENGINEERING, DESIGN, AND PROCESS DEVELOPMENT SECTION
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INDUSTRIAL AND ENGINEERING CHEMISTRY
Vol. 48, No. 3
