Meet Your Competition: Results from the 1994 IRI/CIMS Annual R&D Survey

Abstract

This third compilation of year-to-year information on U.S. industry R&D spending and performance suggest that downsizing is taking a toll on R&D's. contribution to the business performance of firms. Is yours one of them? Recent surveys confirm that a premier interest among R&D executives and managers is measuring performance of the R&D organization. Among the many dimensions of performance these people consider important is return, a measure of R&D's contribution to the value of the corporation. More than 200 R&D executives and managers from 165 Industrial Research Institute member companies rated this performance measure highest in importance in a recent survey by an IRI subcommittee (1). Two financial return metrics are the New Sales Ratio and R&D Return. According to this latest IRI/CIMS Annual R&D Survey, the average New Sales Ratio for a sample of 47 IRI companies is 0.20. This means that, on average, 20 percent of their current annual sales can be attributed to new and improved products that were commercialized in the previous five years. Onehalf of these companies reported an average R&D Return of about 4, indicating that their share of annual gross profits attributed to the introduction of new and improved products plus cost savings attributed to new and improved processes introduced during the last five years was four times the annual cost of their R&D. Are you satisfied with the contribution of your R&D organization to the financial performance of your company? How do you compare with these benchmark figures? Are you measuring New Sales Ratio or R&D Return as indicators of R&D's contribution to the wealth of your company? If not, you are apparently alone. In attempting to collect data from IRI companies needed to calculate R&D return and other financial return metrics, we found that for many companies the requisite R&D performance data were simply not available, or in other cases inaccurate. On the other hand, more than half of the companies did provide usable data for calculating their New Sales Ratio--one key ingredient of financial performance. Source of the Data The IRI/CIMS Annual R&D Survey originated as the primary input to a unique database established by the R&D database subcommittee of IRI's Research-onResearch Committee. The subcommittee was formed in 1991 under the leadership of Gary E. McGraw of Eastman Chemical Company. The intent was to establish a unique database that would allow R&D executives and general management to benchmark and track information on R&D spending and performance of firms and of business segments in specific industries within those firms. It was also seen as a valuable source of data for scholars studying the impact of R&D management decisions and practices on the financial performance of industrial firms within specific industries. The survey has now been conducted for three years covering IRI company data for fiscal years 1992, 1993 and 1994. The IRI survey is done in cooperation with the Center for Innovation Management Studies (CIMS) at Lehigh University. CIMS serves as a repository for the data in order to protect confidentiality of individual company data. The cost of administering the survey is currently being underwritten by the National Science Foundation (NSF), under a three-year grant to CIMS, and by the IRI. The survey requests financial data about the source and allocation of R&D funds at three levels: the firm or corporate level, the business segment level for one or more business segments, and at the laboratory level. Also requested is information about the number and use of R&D personnel and measures of R&D performance at the firm and business segment level. The FY 1994 questionnaire was similar to those of previous years but added a request for data on gross profits at the firm and segment level (see Figure 9, page 25). …