Allocating Resources between Research and Development: A Macro Analysis

This paper attempts to coordinate at the macro level the research potential and the development capability of an organization in a competitive environment. New product ideas generate from various sources of research which are then processed (preliminary screening, market appraisal, technical development etc.) by the development section. In view of the randomness present in the above process, a backlog of ideas will normally be present awaiting development. The longer the delay in processing them, the greater are the chances of a competitor introducing the product in the meantime. Simple queueing models are set up which abstract the essence of the problem, and reveal the causal relationships of the underlying structure. The decision variable (relationship of the research rate to the development rate) is optimized, and its sensitivity to changes in the parameters describing the environment is examined. Generalizations of the approach using Monte-Carlo methods arc also indicated.