Financial Developments 



In the operating environment of the production es- 

 tablishment, implementation of R&D results is only 

 one of many necessary activities. Because implemen- 

 tation tends to divert physical and financial resour- 

 ces from primary production, and because establish- 

 ment plans are almost universally ambitious and gen- 

 erally do not include innovation as a primary success 

 indicator, innovation must compete directly with al- 

 ternative activities. The terms of the competition 

 are increasingly financial. Primary establishment 

 success indicators now are profitability, growth in 

 sales volume, and, to a lesser extent, measures of 

 input productivity and the quality mix of output. 

 Fulfillment and over fulfillment of these target indi- 

 cators lead to substantial financial bonuses and, less 

 formally, managerial careers. 



In general, primary production activities have 

 outrun innovation activities. First, the disruption 

 in normal operations that accompanies the assimilation 

 of new products and processes has not been accounted 

 for, in part because of inadequate preparation at ear- 

 lier stages of the R&D process. This threatens out- 

 put and corresponding sales targets. Second, assim- 

 ilation expenses associated with readying the product 

 for series or mass production are often unanticipated 

 and reduce establishment profitability. For new prod- 

 ucts in particular, the actual input requirements or 

 costs tend to exceed the planned or projected level. 

 Because prices are generally set administratively in 

 relation to planned cost, sales and profitability 

 performance is lowered, often for years. Ivanov ob- 

 serves that the returns on putting new technological 

 hardware into operation are on the average 55 percent 

 lower than on continued production of old items. °1 As 

 a consequence, plan fulfillment is threatened and per- 

 formance frequently falls below levels which might 

 have been achieved in the absence of innovation. 



To remedy the situation, programs have been devel- 

 oped to accomplish three tasks: (1) compensation for 

 increased costs incurred by the enterprise during the 



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