Median Internal Research Expenditures as % of Sales

The question naturally arises, is there a simple answer to achieving growth? One answer could be to just spend more money instead of changing the way New Product Development (NPD) and New Business Development (NBD) is done. Not surprisingly companies have tried many approaches to increasing their NPD output. None have found that simple “throw money at it” works. Instead what we see in the “Median Internal Research Expenditures as % of Sales” figure is that various industries compete most effectively when their R&D intensity falls within industry segment ranges.

Studies are mixed in their view of whether or not increased R&D spending increase is company’s stock value. Many high-level studies conducted by the industrial research Institute (IRI), CIMS, PIMS, and others, such as reported by Clive Cookson, Financial Times, 27 Sept. 2001, have found positive correlations between increased R&D spending and company stock performance. However there appears to be a limit to such investment. There are counter studies which show just the opposite. In fact decreasing shareholder returns correlate to increasing expenditures in R&D. This evidence is provided by Halvard Nystrom in Engineering Management Journal, Sept 2001. Both sets of the status supports the conclusion that appropriate R&D spending occurs within a range of values corresponding to industrial segments.