Management of intellectual asset production in industrial laboratories

Industrial laboratories generate profit for their parent companies and in so doing benefit society through spillovers of novel technologies and solutions. However, research’s share of corporate investment in R&D has been declining. To understand this trend from the operations perspective, we develop a model-based analysis of the management of intellectual asset production in industrial laboratories. The model consists of a linear network with multiple stages in which the first stage is the research division engaged in generating novel concepts and prototypes. It is followed by multiple development stages that transform research outputs into intellectual assets and marketable products. Management is responsible for strategic budget allocation to the stages, and tactical management of individual projects. Decisions are based on intrinsic return on investment in the laboratory, and option values of projects, both of which are endogenously determined. Our model and analyses have revealed several possible pathways that can lead to the management of the laboratories to reduce the share of research spending in their budgets, namely: (i) lower variability of project values; (ii) improved investment efficiency at development stages; and (iii) higher revenue realization from assets produced at early development stages.