As companies strive to remain competitive and offer new products and services, investments in R&D are a necessary part of keeping the innovative lifecycle moving forward in a productive manner. Yet, firms across many industries are grappling with the challenge of R&D productivity and declining returns to R&D investments.
“Enhancing R&D productivity in organizations requires more than investing additional dollars in R&D,” says T. Ravichandran, Lally School of Management associate dean for research and the Irene and Robert Bozzone ’55 Distinguished Professor. “It requires addressing the fundamental reasons for the decline in productivity.”
Ravichandran explores this further in his research, “Mitigating Diminishing Returns to R&D: The Role of Information Technology in Innovation,” with Shu Han (Sy Syms School of Business, Yeshiva University) and Sunil Mithas (Robert H. Smith School of Business, University of Maryland), published recently in Information Systems Research, a top-tier academic journal.
In their study, the researchers theorized that the declining R&D productivity is because of the dysfunctions that arise when R&D activities scale. Collaboration across R&D silos, combining different knowledge streams, engaging customers in innovation, and exploring external ideas becomes challenging. Unless firms develop the capabilities to handle the complexities that arise when R&D units grow in size, increasing investments in R&D are not likely to yield proportional outcomes.
Ravichandran and his co-authors argue that firms should use information technology (IT) to develop the capabilities to handle the complexities of managing R&D. Using archival data from 161 U.S. firms, the researchers found that IT helped firms to handle the increase in complexity and inefficiency that arise when R&D units grow. They found that firms that have strong IT capabilities were able to make their R&D more productive and this effect was stronger for firms with large, complex, geographically dispersed R&D operations and those with a diverse knowledge base.
“Digitization is transforming businesses in fundamental ways and we see this in the way firms such as Amazon and Google handle their growth in size and complexity without the typical dysfunctions of bigness,” says Ravichandran, whose research has established how IT makes firms agile, shapes their competitive behaviors, and enables them to diversify effectively.
“Firms are spending a lot of money in R&D exploring new products, services, and business models. R&D has become very data-centric and IT investments strongly complement R&D expenditure and make each dollar spent on R&D go further,” says Ravichandran. “Firms should strike a balance in allocating their discretionary expenditures between IT and R&D. Overinvesting in R&D without concomitant IT investments is not likely to yield outcomes such as new patents,” says Ravichandran. He notes that this kind of smart investing is the way to prime the innovation pump and his research provides firms some actionable insights on this.
Ravichandran has published several papers in top-tier scholarly journals in information systems (Information Systems Research; Journal of Management Information Systems; MIS Quarterly; Decision Sciences; European Journal of Information Systems), strategic management (Organization Science), technology management (IEEE Transaction on Engineering Management), as well as in leading practitioner journals (Communications of the ACM).
He currently serves as a senior editor of MIS Quarterly and as a department editor for IEEE Transactions on Engineering Management. He recently completed a four-year term as an associate editor of MIS Quarterly and a three-year term as an associate editor of Information Systems Research.
Ravichandran works closely with several large firms and startups on digital strategy, supply chain management, and innovation management. He has had extensive business experience as a consultant to the Reliance Group, Bombay; as the assistant director of the National Productivity Council, India; and as a production manager in Flakt AB (now Asea Brown Boveri). He has also been a successful entrepreneur of an IT services firm. He has a Ph.D. in business administration with a focus on information systems, a postgraduate diploma in industrial and systems engineering, and a bachelor of engineering in production engineering.
