R&D decision quality practices of outstanding R&D organizations

R&D effectiveness is hard to measure. One of the most widely used indicators is the percent of sales from new products. If the people, technologies, and business environment have not changed, this retrospective measure is probably a good indicator for the future. However, change is accelerating in most industries. In-process measures such as number of patents or R&D expenditure relative to competitors ignore the quality and potential value of the R&D activities. Prospective measures of value, such as those used effectively by Eastman Chemical, are theoretically the most desirable, but present considerable practical and credibility problems. Several attempts to clarify the subject of R&D metrics have basically reached the conclusion "it depends". Given this state of affairs, how can senior management determine if R&D excellence is established and if their R&D investments are likely to pay off in the future? This paper proposes a method focusing an organization's internal use of R&D decision-making practices that can be used to diagnose the quality of R&D decision-making and to increase the value created by R&D. The best practices are validated and prioritized by the behavior of 79 leading R&D organizations. Ten essential practices and ten practices for gaining competitive advantage are identified.