Measuring the return from innovation
Is R&D earning its investment?
Against a backdrop of rising costs and declining output, R&D leaders in the life sciences industry are under continued pressure to justify the investment in R&D.
Last year Deloitte and Thomson Reuteurs conducted an analysis into value measurement at the "whole R&D business" level using Internal Rate of Return (IRR). This year, we have extended our analysis, looking at the same cohort of companies one year on.
This year’s analysis has highlighted the following key points:
- R&D leaders are under continued pressure to justify the investment in the ‘business of R&D’ as many companies show a reduction in static IRR
- Year on year (static) IRR measures reflect the productivity challenges within the industry but also conceal some underlying successes.
- Analysis of dynamic returns allows us to identify encouraging signs within the industry, but also shine a light on areas of concern which should remain a focus for R&D leaders.
- For a fair account of R&D performance, dynamic return measures need to be viewed over a four to five year timeframe, yet after one year some companies are demonstrating superior dynamic returns with respect to their peers.