Center for Innovative
Controversy
The
original plan was for the Center for Innovative Technology
to nurture tech startups. Instead, it has nurtured infighting.
Can Newstrom straighten it out?
by
Garry
Kranz
Click
to enlarge
Housed
in a glitzy headquarters building near Dulles Airport,
Virginia’s Center for Innovative Technology symbolizes
the state’s high hopes for high tech. Since it
was formed in 1984, CIT has tried to help Virginia fertilize
new sectors such as the Internet, advanced manufacturing,
nanotechnology and biotechnology. Its backers credit
it with helping the Old Dominion leapfrog from a backwater
to an exciting spot in the highly competitive technology
world.
Yet
all along, CIT officials have been dogged by questions
about what their center actually does for the state
tax money it gets. CIT leadership has been unsteady,
with regular turnovers. Most recently, president Anne
Armstrong was forced out last summer in a Putsch engineered
by George Newstrom, Virginia’s relatively new Secretary
of Technology. And now, Peter Jobse, Armstrong’s
successor and a former Newstrom protégé,
is confronting yet another problem: the loss of $5 million,
or 40 percent of its state funding, due to the state’s
$2 billion budget shortfall. About 30 percent of CIT’s
workers were let go, many of them program directors.
What's more, in November a commission on government
efficiency headed by former governor L. Douglas Wilder
urged CIT be reorganized, saying it lacked a clear mission.
Nor
is 2003 likely to bring much relief. Newstrom says the
new year could determine CIT’s survival. The challenge,
he says, is to jump-start CIT’s impact on the state
in a business-like way. It must take its remaining $8
million in state funding and parlay it into a $350 million
impact to Virginia in jobs, economic expansion and new
research activity.
Ambitious?
You bet. Indeed, some wonder if the goals are realistic.
“It makes you wonder if CIT isn’t being set
up to fail,” says Jeffrey Payne, president of Dulles-based
software company Cigital, whose company relied on CIT’s
help to win federal research contracts worth $4 million.
Newstrom,
a hard-charging ex-Marine, vows that CIT’s failure
won’t come without consequences. He insists that
private-sector business practices be imposed on state
government. His predecessor, Donald A. Upson, preached
a similar gospel, but the difference may be in the insistence
that certain revenue goals be met. As with other state
agencies, every employee at CIT has a circumscribed
set of tasks to accomplish, with “scorecards”
for marking progress. This is all part of the new strategic
technology plan authored by Newstrom’s office.
CIT has been placed on the fast track: by October 2003
Newstrom expects to see interim goals met “or maybe
we should revisit the need for (keeping) CIT.”
Ouch.
For CIT staffers already reeling, that can’t be
comforting news. To be sure, Newstrom is no shrinking
violet. Since becoming Secretary of Technology in March,
he has taken controversial steps, such as overseeing
the ouster of the popular president Armstrong. A former
editor-in-chief of Federal Computer Week, Armstrong
had valuable connections in the federal information-technology
services sector. This was a chief reason why she was
hired by Newstrom’s predecessor, Donald A. Upson,
who served when Republican Jim Gilmore was governor.
Apparently,
Armstrong didn’t fit the mold of the business-savvy
Newstrom, who spent nearly three decades as an executive
with Electronic Data Services Corp. (EDS), a huge IT
firm with a major presence in Northern Virginia. Officially,
the decision to replace Armstrong was made by CIT’s
board of directors. Yet Newstrom makes no secret that
he agrees with the move. “This is no reflection
on Anne, but we needed a strong, business-minded individual
— someone who is familiar with the structure of
companies and who’s been involved with technology
transfer,” Newstrom says. To replace Armstrong,
CIT hired Jobse, a former colleague of Newstrom’s
at EDS.
Armstrong, who declined to be interviewed, says she
wishes CIT “only the best.” Some speculate
the deep budget cuts, perhaps even Armstrong’s
unceremonious departure, were political payback by some
legislators angry at former Gov. Gilmore for raiding
CIT’s budget to fund conferences and other activities
of Upson’s office. Newstrom will have none of it.
He denies politics had anything to do with the decision.
Warner, his boss, is a Democrat, and refers to Armstrong
as a good friend.
Still,
there’s no denying that CIT can be a political
lightning rod. Armstong’s predecessor, the widely
respected Robert Templin, suffered a similar fate in
1999. During his five-year tenure, Templin implemented
numerical benchmarks — a harbinger of what Newstrom
wants to do — to gauge the agency’s success
so its funding could be justified. Templin is credited
with polishing CIT’s image and sharpening its focus
as a high-tech tool for Virginia’s economy. None
of that was enough to prevent Templin from being sacked
after losing a messy power struggle to Upson, who reportedly
disdained Templin’s number-crunching methodology
for benchmarking progress.
Although
all state agencies are nonprofits, CIT is different
in taking state tax money and converting it into tangible
economic benefits to Virginia. This bottom-line orientation
is what repeatedly keeps CIT in the cross hairs of legislators,
especially in tumultuous election seasons. The agency
has dodged budgetary bullets before, the last time in
the early 1990s. Proponents of CIT complain that using
the budget review process to judge CIT’s impact
is ineffective at best.
Much of CIT’s payoff to Virginia, they point out,
isn’t seen right away. Federal research awards,
like the ones CIT helped Cigital win, typically get
paid out over multiple years, based on triggers in the
contracts. “Budgets, politics, cost cutting —
those are not return-on-investment things,” says
Douglas Koelemay, chief policy analyst with McLean-based
Williams Mullen Strategies and a longtime CIT observer.
Aside from helping companies win grants or matching
university research with companies in the private sector,
CIT has developed a number of industry groups. Its Virginia
Link program was set up to help Virginia companies,
especially in rural areas, get needed broadband services.
The program’s aim is to find carriers that will
provide broadband and other high-speed telecommunications
services. Although ambitious, the program has not been
met with enthusiasm. Only a few hundred companies have
signed up for services though Virginia Link, and not
all services are available in all areas.
CIT
also has sponsored industry conferences on burgeoning
sectors like biotechnology, nanotechnology and advanced
materials. These conferences, which draw companies from
around the world, often focus on getting university-based
research from labs to the commercial sector. Businesses,
especially entrepreneurial start-ups, rely on CIT’s
financing and funding programs, as well as its databases
of intellectual property and high-tech employment.
CIT
also gets loaded with too many tasks, sometimes without
being given the resources to accomplish them. The resulting
“Johnny Appleseed strategy” splinters resources
and causes the organization to be pulled in too many
directions at once. It also leads to constant reshuffling.
“The governor’s office has to come out and
say, ‘This is our strategy for CIT.’ Pick
two or three things, build critical mass and create
a process that is sustainable,” says Fred Williamson,
a private management consultant who served as Upson’s
deputy secretary of technology.
In
fact, that is exactly what Jobse has been hired to do.
His immediate focus is on carrying out three main goals.
First, state-sponsored universities have been directed
to form a consortium to try and win $72 million in new
federal research contracts. By bidding collectively,
Jobse thinks universities can land “five to 10
times more” than if they bid individually. Leading
the universities’ effort is Leonard Ferrari, vice
provost for special initiatives at Virginia Tech. Second,
CIT is focusing on helping universities match their
research with industrial partners. The goal: to generate
$25 million in licensing royalties for new commercial
products. Those first two objectives fold neatly into
a third: producing a net gain of $250 million in economic
development to Virginia, including new jobs and companies.
Those
goals echo the slogan CIT originally adopted following
its creation by the General Assembly nearly 20 years
ago: to foster “jobs, companies and competitiveness.”
Nor is the theme of privatization new; Upson preached
a similar gospel. Williamson, for one, is skeptical
CIT will be able to accomplish such lofty tasks, especially
with decreased funding. “Ask any venture capitalist
if it’s possible to take $8 million and turn it
into $350 million in one year, and they’ll laugh
you out of the room.”
Jobse,
who has nearly 25 years of running private companies,
agrees the numbers may need to be revised slightly.
The original $350 million payoff was based on CIT’s
receiving funding of $9.2 million in 2003, but Warner’s
draconian measures to patch the state budget shaved
off nearly $1.5 million, reducing CIT’s total to
about $8 million But Jobse insists the tasks can be
accomplished by changing how CIT is managed. He especially
hawks benchmarks such as revenue targets that will be
used to gauge CIT’s performance. “We want
to manage CIT,” says the 45-year-old Jobse, “to
get the best return on investment.”
It’s
unclear how all this revamping will affect Virginia’s
businesses. With nearly $5 million less to spend, however,
it seems likely that CIT will jettison some sponsored
programs. Some fear programs that help smaller companies,
especially in Virginia’s hard-hit manufacturing
sectors, could suffer the most.
Virginia’s
Manufacturing Innovation Center (VMIC) is one example.
CIT established the center, on the campus of James Madison
University in Harrisonburg, to help small companies
learn how to use advanced manufacturing technologies.
Funding for VMIC expires after this year, though. “We’re
not anticipating a major problem, since we only get
about 25 percent of our funding from CIT,” says
Mohamed “Mo” Zarrugh, VMIC’s executive
director. Still, Zarrugh acknowledges that losing CIT
support could limit VMIC’s ability to expand programs,
especially to “smaller companies that don’t
have the level of money to risk on R&D” that
larger manufacturers do.
One
Virginia manufacturer, Bristol-based Strongwell Corp.,
realized profits sooner as a result of an affiliation
with CIT, says company executive Glenn Barefoot. In
the late 1990s, CIT provided Strongwell with grants
of $100,000 for testing and engineering of fiberglass-based
bridge components. Without that money, the company would
have had to absorb the cost itself. Says Barefoot: “It
allowed us to get the testing done sooner, which helped
us get products to market sooner and earn revenues sooner.”
In an appearance before Virginia lawmakers, Newstrom
also cited Strongwell as an example to show CIT’s
impact.
To
look at CIT’s future, it may be instructive to
look at its past. Rick Claus has one of the longest
institutional memories of CIT, having been among a group
of business and education leaders that lobbied for its
creation. Claus, an engineering professor at Virginia
Tech University for 25 years, also heads one of the
earliest and most successful CIT-spawned research centers:
the Fiber and Electro Optic Research Center. Based at
Virginia Tech, FEORC, as it is known, is credited with
helping launch 20 start-ups in Blacksburg and surrounding
areas, resulting in nearly 200 full-time technology
jobs. That’s an average of one new company every
year. One of those companies, Nanosonic Inc., was founded
by Claus four years ago and has grown to 27 employees.
Despite
those impressive stats, CIT halted funding to FEORC
in 1995 — a move that puzzles Claus. Under the
Newstrom plan, it is possible CIT may revisit ventures
like FEORC that have produced results. At any rate,
Claus sees the turnover as a needed tonic. “CIT
has inertia,” says Claus, sounding like a true
engineer, “and like any body that has inertia,
it can have difficulty creating momentum.”
Then there is the perennial debate about what to do
with CIT’s slanted black building, a local landmark
that sits on 29 prime acres. Lawmakers are studying
a report from Newstrom’s office that assesses the
value of the land and the building, presumably to decide
whether they’re worth keeping.
Newstrom
doesn’t sound like a man who wants to abolish CIT.
He refers to the center as the “umbilical cord”
that connects Virginia to other high-tech areas in the
country. The agency, he says, is a key driver for tech-based
economic growth. Perhaps as the economy improves, both
nationally and in Virginia, Newstrom, Jobse & Co.
will let up on the accelerator. For now, the mission
for CIT is crystalline: get moving, or get lost.
