The strategic importance and effectiveness of key decision criteria in the selection of research areas

To maximize the benefit of research investments to the business firm, research and development (R&D) related decisions (e.g., selection of research areas) should complement the firm's chosen basis for competing in the market. This has been stated by numerous authors, including Ansoff (1984), who recognizes that the technology and competitive strategies of a firm should be compatible.

Maidique and Patch (1988) identify six R&D-related decisions made by firms. These decisions form a technology policy that should round out the firm's competitive strategy. One of the most important aspects of technology policy is the selection of research areas in which to invest. This dissertation focuses on this selection and examines the correlation between economic performance and the amount of emphasis placed upon the two selection criteria identified by Maidique and Patch (i.e., relatedness and opportunity).

To accomplish this task, (1) a decision-making exercise was given to individuals (Chief Executive Officers and Vice Presidents of R&D) involved in the process of selecting research areas for firms in the pharmaceutical preparation industry (SIC 2738), and (2) the decisions of those managers were modelled. Based upon 53 responses received, this dissertation documents the correlation between Maidique and Patch's stated criteria for selecting research areas, namely opportunity and relatedness, and three measures of business economic performance, namely, return on investment, sales growth, and net income growth. The results revealed only a small correlation ranging from 0.01 to 0.12. When multiple factors (i.e., degree of relatedness of a research area, degree of opportunity of a research area, whether or not the decision maker possesses a Ph.D. degree, and the primary competitive basis utilized by the firm) were regressed against the business economic performance indicators and contrary to Maidique and Patch's theory, the largest parameter estimate was associated with whether or not the person selecting the research areas for investment possessed a Ph.D. degree. The second largest parameter estimate was associated with the primary basis for competing utilized by the firm (i.e., low price or product differentiation).