Tag: R&D

The Wall St. Journal reports that Google Inc. is placing time limits on its research and development projects. Known for its heavy investment in R&D, Google reportedly spent $9.8 billion on R&D last year and has reaped lucrative rewards from its in house innovations and designs. But Prof. Anne Marie Knott, tells the WSJ that in 2013 Google “was nearing her estimate of the optimal investment on R&D, beyond which companies generally see diminishing returns.”  Article is behind WSJ subscriber paywall.

CNBC unveiled a new ranking of the most innovative companies in the market based on research and a ranking system devised by Olin professor of strategy Anne Marie Knott. The CNBC RQ 50 includes companies from a wide swath of industries from oil, gas, and defense to Silicon Valley’s stars. RQ stands for Research Quotient.

The CNBC RQ 50 is a unique list of publicly traded companies that derive the greatest shareholder value from their research and development spending (at a minimum of $100M annually), created in partnership with Washington University in St. Louis professor Anne Marie Knott, inventor of the Research Quotient (RQ). The RQ is calculated based on Professor Knott’s proprietary formula and is designed to help investors know what a company can expect to gain in revenue from an increase in R&D investment. – CNBC website

“Economic growth comes from innovation and R&D is the biggest source of innovation,” says Prof. Knott. “So if we can get each firm to increase their RQ a little bit that will lead to a permanent increase in economic growth.”

Prof. Anne Marie Knott

“The longer-term benefits are even greater,” Knott says, “as RQ also allows companies to more closely link changes in R&D strategy, practices and processes to profitability and value.”

Knott’s research led to the development of the RQ measurement tool. It is designed to help companies address several key questions that underlie R&D strategy:

• How does a company know what kind of return it is getting from R&D?
• Is it better at R&D than the competition?
• How much should it be spending and what can it do to improve the effectiveness of those investments?

“I had been hoping for a measure like this since before becoming an academic,” Knott says. “Existing measures of innovation, such as R&D intensity and product/patent counts, don’t allow firms, policy makers or academics to know the answers to these big questions.”

Knott’s RQ metric allows companies to estimate the effectiveness of R&D investment relative to the competition.

“It lets them see how changes in their R&D expenditure affect the bottom line and, most important, their company’s market value,” Knott says.

Images:  CNBC video screen shot from CNBC website

Profesor Anne Marie Knott has received a grant of $106,537 from the National Science Foundation for her research into the relationship between firms’ innovation initiatives through research and development and the impact of that investment on economic performance.

The Harvard Business Review published an article by Knott in its May 2012 issue about her research titled, “The Trillion-Dollar R&D Fix.”  Knott calls her new metric for R&D productivity “RQ”—short for Research Quotient. RQ allows companies to estimate the effectiveness of their R&D investment relative to their competition and to see how it affects R&D expenditures, the bottom line, and the company’s market value.

From the NSF award announcement:

“The National Center for Science and Engineering Statistics, SBE Directorate for Social, Behavioral & Economic Sciences is managing the project. Knott is the principal investigator.

At the policy-level, the study provides theoretically motivated and empirically rigorous insights for directing investment in innovation for the America COMPETES Reorganization Act of 2010: characteristics of firms likely to generate the highest returns to that investment (who). Second, for practitioners, the study offers firms prescriptions for increasing their R&D effectiveness (how).

Thus the study has the potential to increase the aggregate R&D productivity in the U.S. Finally, for academics, the study will answer long-standing questions in the economics of innovation literature to support future theory development on the optimal conditions for innovation.”