Research and Development (r&d) are the source for planned invention and innovation and therefore play a crucial role for the success of a company. New products and processes become indispensable because of technical progress and competition. Early long-range r&d planning is required.Despite the strategic importance of r&d budgeting, the usual approach resembles more a rule of thumb than a scientific method. The process most widely used takes a fixed percentage of sales for r&d. This sales orientation approach seems perhaps too simple, as there is no causal link between today's sales and tomorrow's products. Another method considers the product-innovation-rate; this is the fraction of total sales which comes from products that are younger than e.g. five years. The actual product-innovation-rate then is compared with an intended value (e.g. forty per cent) and the r&d budget is accordingly adjusted.Contrary to previous studies, a System Dynamics simulation shows that the rather sophisticated product-innovation approach does not lead to better results in terms of cumulated profit. In its place, a modified approach, which avoids the disadvantages and combines the benefits of both the sales and the product-innovation-rate orientation methods, has been developed and implemented. This sales-oriented product-innovation rate approach shows superior results in some of the scenarios tested, including expansion and shrinkage portfolio situations.The handy but accurate System Dynamics model (less than hundred equations) is easily adaptable to individual circumstances of specific industrial enterprises and therefore offers practical support for strategic long-range planning.

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Date created

• 1987

Type

• Document

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• Processing documentation available at: https://wiki.albany.edu/display/SCA/Processing+Ingested+Digital+Files

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• Creative Commons BY-NC-ND Attribution-NonCommercial-NoDerivs 4.0 International

  
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ef456d2a6c943c510d5169405dfd9416

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83d7d84d4a906b77a877f50ccddf0ccd

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Collection

System Dynamic Society Records

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Collecting area

• This collection is part of the University Archives