THE RESEARCH-AND-DEVELOPMENT CYCLE - THE INFLUENCE OF PRODUCT AND PROCESS RESEARCH-AND-DEVELOPMENT ON SHORT-TERM ROI

The purposes of this paper are first to explore the relationship betwe en the total R&D budget and two major components, product and process R&D, and second, to examine the relationship between these two types o f R&D and the profitability of the business, The paper explores a cycl ical pattern in the relationship between product and process R&D on th e one hand and the short-term return on investment (ROI) of the busine ss on the other hand, The total level of R&D investment plays a key ro le in this relationship. The foundation of this paper is based on prio r work about the changing role of R&D over the life cycle of a new pro duct or a new technology. It is also based on the notions of the S-cur ve response function and the limited compatibility between product and process R&D. The empirical part of the paper is derived from the PIMS database where the sampling units are strategic business units (SBU's ), It is, therefore, different from studies where the focus of analysi s is a single product or technology. Two forms of analysis are present ed: correlation analysis of the hypothesized relationship and nonparam etric tests of the stability of findings. The analysis assumes a lagge d relationship between the investment in R&D and performance in terms of ROI. The primary conclusion is that product and process R&D modestl y affect ROI two years later, The relationship appears to be different depending on the level of total R&D spending.