TECHNOLOGY FIRMS ARE FINDING THEIR EXPERTISE ELSEWHERE

An unwitting visitor to Cel-Sci Corp.'s Alexandria headquarters might find things a bit baffling. The biotechnology company, which hopes to use interleuken-2 to find a cure for cancer, doesn't own a test tube or petri dish and has no research scientists on staff A visit to the headquarters of TelePad Corp., which wants to sell a hand-held computer that reads handwriting, would reveal that the Reston company has no computer scientists and no manufacturing facilities.

And a trip across the Potomac to the District headquarters of Spacehab Inc., which is building a module for the space shuttle, would show a company that has no in-house capability to design or build anything to fly in space.

This absence of experts and expertise is by no means unique to these three technology companies. The more common image of technology firms might be companies with scores of white-coated scientists or computer techies. In fact, only a handful of Washington area commercial technology companies, such as software firms Legent Corp. and American Management Systems Inc., have the resources to offer most critical in-house services.

Others, such as Cel-Sci, are little more than hollow -- small operations that draw up a strategy or game plan and raise the financing, but are dependent on consultants, academic experts and other companies to get the final product out.

These hollowed-out companies are by no means unique to Washington, nor are they unique to the technology industry. But to understand the Washington technology scene -- how these companies are able to exist, what forces are determining the direction of their research and what obstacles they face in trying to grow -- it is important to understand that many of these companies are both more and less than they seem.

For instance, Cel-Sci has only four full-time employees -- the chairman, the chief financial officer and two secretaries. But Geert R. Kersten, Cel-Sci's chief financial officer, believes the term "employees" is meaningless these days.

"Employees are not what we call our people. We call them the greater family of Cel-Sci, which includes the scientists, consultants and advisers who have worked on this project over the past eight years," said Kersten, who put the size of the family at about 40.

Cel-Sci has contracted with scientists at the University of South Florida to do its research. If that research results in a product, Cel-Sci expects to hire an outside manufacturer to produce it, and to form an alliance with another company to sell it. For other functions needed to keep the company running -- bookkeepers, accountants, lawyers, regulatory experts -- Cel-Sci depends on outside experts or part-time staff.

Likewise Spacehab, which plans to lease a module to the National Aeronautics and Space Administration that will expand the working room on the space shuttle, has only eight employees. It hired aerospace giant McDonnell Douglas Corp. to design the space module and oversee the construction, and Italian aerospace company Alenia SpA to build the outer shell.

By contracting out, the work could be performed at a fraction of the time and cost it would have taken Spacehab if the company had to assemble a team of experts and develop in-house manufacturing capability.

In addition, while International Business Machines Corp. might be able to pay the kind of money and provide the kind of research budgets needed to lure the top technology brains out of academia, few of the smaller technology companies can compete like that. The consultant approach allows these companies to get access to such scientists.

Thus Xsirius Superconductivity Inc., a Arlington company with 24 workers that is trying to develop commercial applications for products using high-temperature superconductivity technology, is able to hire leading experts from academia for annual consulting fees of $20,000 to $30,000, said Charles M. Kupperman, president of Xsirius

Superconductivity.

Other companies take other approaches. By trying to concentrate on what it does best -- negotiating good prices for computer equipment -- the ASC II Group Inc. in the District grew to a $2 billion operation in 1990. Instead of trying to build a computer store chain from scratch by starting up its own stores or buying out mom-and-pop operations, ASC II has assembled a group of 677 independently owned stores and charges them $250 a month to negotiate volume rates for them.

"Five years ago, the religion was that you should be good in everything. Now the realization is that the market is moving too fast. You've got to know what your strengths are and then fill the holes in," said Mike Farabelli, an Ernst & Young partner who advises technology companies on acquisitions and strategic alliances.

"You're going to see more of this in the future because of globalization. Companies are realizing they can't be all things to all people," Farabelli said.

"Maybe 15 years from now, the corporation as we know it will not exist, the fully integrated enterprise offering all services," said John Dealy, professor of business strategy at Georgetown University's business school. "Instead the corporation will be more a set of contracting relationships with a core selling staff and core contracting staff."

Not everyone applauds the trend toward hollowing out. Jeffrey Pfeffer, professor of organizational behavior at Stanford University, warned that companies are taking an easy approach that solves short-term problems and creates long-term ones.effectively, Pfeffer said.

Executives acknowledge that they often have less control over work that is done outside their corporate walls.

For instance, Kersten said Cel-Sci cannot dictate the pace of the research when it is performed by academic scientists who may be working on other projects or have teaching responsibilities. Similarly, Cel-Sci cannot stop the scientists if they want to publish something, such as findings that might not be favorable to their product. Likewise, ASC II cannot control the operation or policies of its stores, since it does not own them.

In addition, Wayne T. Hockmeyer, president of MedImmune Inc., warns that companies that depend too heavily on outsiders can be bargaining away their future profits and growth.

MedImmune, a Gaithersburg biotech company, has taken a middle-of-the-road approach to contracting out. For instance, some research is done in-house and some at universities. Similarly, MedImmune expects some sales to be handled by other companies and some by an in-house sales staff.

Despite concerns about contracting out, Dealy predicted that more companies will increasingly move toward performing only those tasks for which they have a core competency and hire expertise from others for remaining jobs.

"It's a more realistic approach to the way things are in the world, which is rapidly changing," Dealy said. "If there is a limited amount of capital resources around, why do we want to be replicating institutions, rather than putting those resources into product development and innovation?

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