Annual Meeting 2014 - Improving the Value of R&D

Demonstrating and Improving the Value of R&D Anne Marie Knott, PhD, Professor of Strategy, Olin Business School, Washington University

Historically R&D has been the engine of both corporate and economic growth. That engine has been sputtering for the past thirty years because firms are flying blind. Because there haven’t been good measures of R&D, firms don’t know how effective they are, whether new initiatives like open innovation improve or degrade effectiveness (much less how much), nor even how much to spend. The spending problem alone is enormous. The May 2012 Harvard Business Review article, “The Trillion Dollar R&D Fix” demonstrated that if the top 20 firms could get their R&D budgets closer to optimum, they would increase their combined market value by one trillion dollars.

A new measure of R&D effectiveness, RQ (short for research quotient), has the potential to do for R&D productivity what TQM did for manufacturing productivity and hospital report cards are doing for patient morbidity. This session defines RQ, shows how powerful it is in matching economic predictions, and illustrates its utility for firms, investors and policymakers. Finally, preliminary results from a study linking RQ to firm practices in the National Science Foundation (NSF) Survey of Industrial Research and Development (SIRD) over the past thirty years are disclosed. Keywords: measuring R&D effectiveness, Sabermetrics, RQ