Research and Development: Risk Aversion and Performance Measurement When theeconomic outlook becomes uncertain, some managers look to cut costs in research and developmentto provide a short-term boost to profits. The problem with this strategy is that it reduces the opportunities for new products and product improvements in the coming years, which are necessary forthe long-term competitiveness of the firm. As Intel chair Craig Barrett says, “You cut off your futureif you do not invest.”Required1. What role does risk aversion play in determining the amount to invest in research and developmenton an ongoing basis? How might a firm manage risk aversion so as to continue the desired level ofspending on research and development?2. What type of strategic business unit would you choose to evaluate the performance of the research anddevelopment department? Explain your choice briefly
Research and Development: Risk Aversion and Performance Measurement When the
economic outlook becomes uncertain, some managers look to cut costs in research and development
to provide a short-term boost to profits. The problem with this strategy is that it reduces the opportunities for new products and product improvements in the coming years, which are necessary for
the long-term competitiveness of the firm. As Intel chair Craig Barrett says, “You cut off your future
if you do not invest.”
Required
1. What role does risk aversion play in determining the amount to invest in research and development
on an ongoing basis? How might a firm manage risk aversion so as to continue the desired level of
spending on research and development?
2. What type of strategic business unit would you choose to evaluate the performance of the research and
development department? Explain your choice briefly
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