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In industry, theme at present is very much, Doing a lot more with a lot less. Funds for RD to those who don't, no explanation is possible. The Industrial Research Institute has named me to lead a committee of IRI member company representatives who are interested in tackling very difficult area of measuring R&D effectiveness on company productivity. This article is an interim report on how we have gone about our task and what our preliminary findings look like. We have not discovered the philosopher's yet, but we are making progress and expect to identify stone shortly. To expand on theme of increasing financial pressures being placed on R&D, two examples are particularly relevant: 1. Alden S. Bean, professor and director of Center for Innovation Management Studies at Lehigh University, and a committee member, has cited interviews carried out in 1989 with some 15 CEOs of large IRI companies (1). Four quotes reveal general frustration that CEOs have with metrics used to assess contribution of R&D to company performance: * Look at them all, but don't trust any of them. * never heard of a method that makes any sense to me at all, but I look at a number...within context of marketplace. * common thread...is lack of suitable measures of current R&D productivity.... * is a need for development of a common language with which R&D and corporate management can communicate...'. A VERY EXPENSIVE FUNCTION Although CEOs can fairly simply measure whether other departments are doing their jobs, R&D stands out as a very expensive function that some CEOs simply do not understand or even if they do, cannot measure it contribution. These CEOs are crying out for help and we--the R&D community--should respond. 2. There is a strong and increasing pressure being felt by R&D function from business leadership to move R&D closer to business goals (usually short term). This movement is resulting in R&D function's losing its identity in some companies, where it is increasingly used as a resource to be called upon by business leadership as business climate dictates. Concurrently, there is a movement away from corporate laboratories within U.S. firms, accompanied in recent years by a marked decrease in amount of basic research carried out. HOW VALUABLE IS R&D This apparent change in role of R&D may be good or it may be bad, but no one knows until they measure it. R&D's role in wealth creation is not in dispute at macro level, where economists measure social rates of return from industrial R&D in range of 30-50 percent. It adds enormously to credibility of this relationship when it is talked about in quantitative terms by eminent economists. Moving down from society to company level, where wealth generation starts, is real interest of this committee's study. Bean and coworkers have measured a number of firms using Total Factor Productivity (TFP) index, which measures ratio of output (net sales) to inputs of labor, capital and materials (2). …
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