A resource allocation model for R&D investments: A case study in telecommunication standardization

Abstract

Industrial firms need to adjust their R&D activities in response to changing perceptions about the business relevance and success probabilities of these activities. In this chapter, we present a decision model for guiding the allocation of resources to a portfolio of R&D activities. In our model, the dynamic structure of the decision problem is captured by decision trees, and interval estimates are employed to describe uncertainties about the sales parameters. Possible interactions among the activities – such as synergy and cannibalization effects – are accounted for by approximating their impact. We also describe how this model was deployed in a major telecommunication company and how the company has adopted the model into regular and extensive operational use when allocating resources to standardization activities.