In our work with a wide array of science and technology-based companies over the years, a question we increasingly hear from executives is, “are we spending the right amount on our Research and Development (R&D) efforts?” The answer to this fundamental business performance question is as individual as each company, but a critical component is always the counter question of “how will you know?” As with many other aspects of business, a good deal of that answer starts and ends with metrics, and even more importantly, selecting the right things to measure.
While it’s very common to track how much R&D costs, and what percentage of revenue it represents (“research intensity”), this time-honored metric doesn’t go very far in telling executives how productive their company’s research efforts actually are. To get at that much more relevant answer, it’s far more useful to track measures that tell you how well the resources you put into R&D are advancing your business objectives.
This is one of the key points that Scott is quoted on in “Examining the ROI of R&D,” an article in the May/June 2011 issue of Chief Executive Magazine. The key is to ask not “I we spending the right amount on R&D,” but rather “is our R&D investment providing the business benefits that we want and need?” The clearer that the executive team is on the objectives they seek to accomplish through their R&D operation, and the more fully the people involved in R&D understand the business context and consequences of their efforts, the more likely it is that your return on R&D investment will contribute meaningfully to your company’s growth and profitability.