The R&D Effectiveness Index: A Metric for Product Development Performance

Abstract

Measuring the overall success of product development efforts has been frustrating because there is no generally recognized metric to measure effectiveness. The R&D Effectiveness Index is introduced to address this need. It measures effectiveness by comparing the profit from new products to the investment in new product development. The article provides the details for calculating the index along with alternative interpretations. Michael McGrath and Michael Romeri report that this index was validated through a study of 45 electronic systems companies. They found a strong relationship between the R&D Effectiveness Index and other performance factors and believe that the R&D Effectiveness Index can be used to compare performance, measure improvement, and evaluate business units. Its application is illustrated in a case study.

A Novel Approach for Evaluation of Projects Using an Interval–Valued Fuzzy Additive Ratio Assessment (ARAS) Method: A Case Study of Oil and Gas Well Drilling Projects

“…Risks and operational risks, in particular, are also important indicators that many researchers have taken into account [23,63,80]. In addition, research and development (R & D) and related costs are identified as influential parameters in improving project performance [81,82].…”

Multi-Dimensional View of Innovation Performance from Knowledge Dynamics to Maturity Matrix

“…Actually, many metrics that seem right and easy to be used have subtle, counter-productive consequences; whereas metrics focusing on decisions and actions which are critical to organizational innovativeness are more difficult to measure (Minonne & Turner, 2012). For instance, the "R&D Effectiveness Index" (EI) proposed by McGrath and Romeri (1994). This index, roughly equal to the percent of profit obtained from new products divided by the percent of revenue spent on R&D, attempts to measure R&D effectiveness based on the net revenue that R&D contributes to the organization.…”

Industrial Engineering

“…Measures related to economic benefits of innovations can be named as; sales share of new products (Hollenstein, 1996), new product profit in a year per R&D spending in that year (McGrath and Romeri, 1994), licenses granted to other firms (Hollenstein, 2003). Moreover, social impacts of innovation can be measured.…”