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External Partners Alumni Search Submit Return to home Search Search About About Olin Home Why Olin Equity, Diversity & Inclusion Leadership & Strategy News & Media Events Contact Us Programs Programs Home Explore Our Programs BS in Business Administration MBAs Specialized Master's Doctoral Executive Education Dual Degrees Faculty & Research Faculty & Research Home Faculty Directory Research Research Centers Olin Brookings Commission Olin Award Student Resources Student Resources Home Career Services Center for Experiential Learning Entrepreneurship Academic Calendars Student Organizations For Current Students For Military Veterans Admissions Admissions Home Scholarships & Aid Attend Program Events Visit Olin Ask a Student Student Profiles Request Information Refer a Candidate External Partners Alumni Prof. pins stagnant profits on ill-advised moves in innovation December 15, 2017 By Kurt Greenbaum 2 minute read Home News Prof. pins stagnant profits on ill-advised moves in innovation Though the stock market is strong,&＃160;company profits are stagnant&＃8212;a function of a short-term focus that one Olin professor attributes to a&＃160;slow-down in innovation. In a&＃160;Dec. 13 article for&＃160;Harvard Business Review,&＃160;Anne Marie Knott attributes the lack of innovation to three trends she uncovered through research she and her collaborators have developed. Knott, Olin&＃8217;s Robert and Barbara Frick Professor in Business, blames the &＃8220;short-termism&＃8221; on the trend toward companies hiring &＃8220;outside&＃8221; CEOs to &＃8220;shake up&＃8221; the organization and provide fresh insights; the decentralization of corporate research and development efforts; and a focus on &＃8220;development,&＃8221; rather than &＃8220;research&＃8221;&＃8212;or, said another way, too little early-stage innovation. In the first case, Knott argues that new, outside CEOs tend to lack the technical domain expertise to drive R&D growth. Using &＃8220;RQ,&＃8221; or&＃160;a &＃8220;research quotient,&＃8221;&＃160;as a measure of the return on R&D investments, Knott noted that firms with outside CEOs tended to see a decline in R&D intensity&＃8212;a ratio of investment to sales&＃8212;and a corresponding decline in R&D capability. &＃8220;In other words,&＃8221; Knott writes, &＃8220;the new leader&＃8217;s disinvestment cut meat as well as fat.&＃8221; Further, by moving R&D responsibility from a central unit to separate division managers, firms separate the incentive from the result. Division managers, Knott writes, find that &＃8220;their compensation is typically based on division profits (which they largely control), rather than on the company&＃8217;s market value (over which they have little control).&＃8221; The result again is a reduction in the firm&＃8217;s RQ quotient. Finally, a similar problem plagues firms by lowering their tendency to invest in early-stage technologies and innovations&＃8212;and for a similar reason: Division manager compensation is tied to division profits. She cites Procter & Gamble as an&＃160;example of a company that decentralized R&D from the 1990s to 2008. After a string of market-moving&＃160;innovations such as the first synthetic detergent (Dreft in 1933), first fluoride toothpaste (Crest 1955), and Febreeze odor fresheners in 1998, &＃8220;P&G failed to introduce a single blockbuster,&＃8221; Knott writes. Read more of Knott&＃8217;s article on HBR.org. About the Author Kurt Greenbaum As communications director for WashU Olin Business School, my job is to find and share great stories about our students, faculty, staff, and alumni. I've worked for the Consortium for Graduate Study in Management as communications director and as a journalist for the St. Louis Post-Dispatch, Sun-Sentinel in South Florida and the Chicago Tribune. Contact Us For assistance in finding faculty experts, please contact Washington University Public Affairs. Monday&＃8211;Friday, 8:30 to 5 p.m. Sara Savat, Senior News Director, Business and Social [email protected] &＃160; Kurt Greenbaum,Communications [email protected] Twitter: WUSTLnews Share article Apply Now Visit Us Request Info One Brookings Drive, St. Louis, MO 63130-4899 [email protected] 314-935-7301 News & Media Events Faculty Directory WashU Center for Career Engagement Washington University home Olin Links Sitemap Privacy Policies Title IX Accessibility ©2024 Washington University in St. Louis