R&D strongest in companies that hire CEOs who are young, have background in marketing, science, R&D, says O.R. study
Research and Development spending to generate innovative new products is strongest at corporations whose CEOs are younger, invest heavily in their own firms stock, and have experience in marketing, engineering, or R&D, according to a study in a journal of the Institute for Operations Research and the Management Sciences (INFORMS®).
In contrast, firms led by CEOs who are attorneys or approaching retirement spend much more conservatively on research projects, whose success cannot be guaranteed and whose failure can carry a hefty price.
The authors used operations research models to analyze sample data drawn from the 1989 and 1990 Business Week 1,000 lists and the Business Week R&D Scoreboard special issue in corresponding years. To be sampled, firms had to report R&D expenditures in Business Weeks R&D Scoreboard special issue in the corresponding sample years. This ensured that firms were selected from industries where funds are spent on R&D. Complete data from all sources were available for 172 firms.
The authors measured total R&D dollars spent per employee by each firm relative to its industry average, thus correcting for differences in R& D spending between industries. Relative R&D spending was calculated by subtracting from an individual firms R&D spending amount based on the industries in which the firm operated.
To measure CEO career experience, each CEOs listed experiences were coded by the authors into six categories: finance/accounting, legal, productions/operations, administration, marketing/sales, and engineering/R&D. CEO age was measured in years. CEO tenure was measured as the number of years since being appointed CEO. The value of stock ownership was measured as the number of shares owned by the CEO multiplied by stock price per share on the last day of the stock market in the year sampled.
The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with over 10,000 members dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications. 2002 is the 50th anniversary of organized operations research in the United States. 1952 was the year that the journal Operations Research and the Operations Research Society of America, one of the founding societies of INFORMS, were born. The INFORMS website is at http://www.informs.org.
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