Is R&D Getting Harder, or Are Companies Just Getting Worse At It?

Acknowledging that correlation is not causation, it’s still striking that, over the past 30 years, both the overall effectiveness of all companies total R&D spending and growth in U.S. GDP have declined by similar amounts. Could it be that there is a causal relationship?

The author, a Professor of Strategy at the Olin School of Business, has, over the past number of years, researched and developed the concept of the Research Quotient (RQ) which measures R&D productivity. Changes in RQ over time indicate how individual companies, categories of companies (e.g. industries) or the entire company ecosystem is doing. The conclusion – “companies have gotten worse at R&D” with the returns to companies R&D spending declining 65% over the past 3 decades.

Interestingly though, the RQ of those few companies at the peak of the power distribution curve has increased in the same time period. It’s the shape of the distribution curve that’s changing, with a steeper slope and fewer companies with top RQ’s higher than their historical counterparts. In other words, Apple’s RQ today is higher than GE’s RQ when it was at its peak a few decades ago.

The causes of this phenomenon are yet to be determined. The author provides some thoughts on the subject and one can speculate on what it all means but clearly much more needs to be researched. An interesting approach and worth keeping track of the research as it progresses.

Original Article »


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