Industrial Research 



9 



Place of Industrial Research 

 in the Industrial Organization 



It is generally accepted that research, as a staff 

 function, receives the direct attention and policj' super- 

 vision of the principal executive management of the 

 industrial corporation. There is no standard pattern 

 for the place of the research department in the organi- 

 zation, however, and occasional attempts are still 

 made to subordinate research to production, sales, or 

 other functions. Wliere research has been success- 

 fully established on a continuing basis, such subordina- 

 tion to other functions is not general practice. 



Committee management is found to be more frequent 

 for research than in otlier organizational units in in- 

 dustry. Such committees represent other major divi- 

 sions and define broad research objectives, establish 

 policies, and e.xercise financial control. The research 

 director supervises the research within the limits thus 

 imposed. In the absence of such practice, equivalent 

 provision for cooperation with other departments 

 usually is provided. 



In a majority of companies questioned on the subject, 

 the final decision in authorizing individual research 

 and development projects rests with an officer of the 

 company, most frequently the president; only 19 per- 

 cent rely upon a committee, with the president usually 

 a member.^ This may be the executive or management 

 committee, although special research committees, 

 planning committees, "construction and experimental" 

 committees, and budget committees are mentioned. 



No standard practice has been found for the deter- 

 mination of the amount to be spent by a company on 

 research. Some companies attempt to establish a rela- 

 tion between expected value and the budget, a basis 

 requiring rather clearly defined objectives. A few set 

 aside a percentage of gross sales, while most use a 

 combmation of methods.^ The proper ratio cannot 

 easily be determined, since it varies with the nature of 

 the product, the value added by manufacture, size of 

 company, and many other factors. Inquiry in a 

 variety of industries has shown, however, that per- 

 centages amountmg to from Yi to 3 percent of gross 

 sales are frequently found where research is well estab- 

 lished. As low as one-tenth of 1 percent or less may 

 be found within the packing mdustry, for example, 

 while in chemicals 5 or more percent of gross income is 

 frequently noted. 



Estimates or even records of amounts expended for 

 research are difScult to secure because of the loose 

 definition of the term. It is seldom possible to attain 

 unanimity of opinion, even within one company, as to 



' National Aasociation of Cost Accountanlt Bulletin, XX, No. 13, Sec. UI (March 

 1939). 



* Chamber of Commerce of the United States, Department of Manufacture. 

 Budgetary and accounting procedures for organized industrial research. Wash- 

 ington, D. C, Chamber of Commerce of the United States, 1937. pp. 4, 5. 



what constitutes research. In particular, quality 

 control tests and analyses frequently contribute to 

 product improvement and may in part properly be 

 called research; similarly "trouble shooting," routine 

 investigation of production or sales difficulties, may lead 

 to change of process or product. Costs reported most 

 carefully may not be presented on a basis directly 

 comparable with figures from other companies prepared 

 witli equal care. 



The principal expense in research laboratories is in 

 wages and salaries, occasionally of the order of 75 or 

 more percent.^ For the purpose of estimating amounts 

 spent by industry on research, a figure of $5,000 per 

 man per year has been used frequently by well informed 

 research executives. Recent sampling inquiry of a 

 number of laboratories for the purpose of this report 

 gives an average annual cost per man of approximately 

 $4,000. This cost includes both professional and non- 

 professional men as reported in the National Research 

 Council Directory of Industrial Research Laboratories. 

 Such an average per person cost cannot safely be used 

 for any one company as wide variation — from $2,500 

 to over $9,000 — is shown on the returns made. An 

 average figure of between $4,000 and $5,000, however, is 

 considered roHable in estimating the total amount spent 

 by industry or any large section of industry on indus- 

 trial research. In the present canvass of laboratories, 

 over 70,000 research workers have been reported. Close 

 estimates are out of the question because there is no 

 precise and generally accepted definition, but on the 

 basis of this number of men and the average cost per 

 man indicated, it may be estimated in round figures 

 that American industry is spending over $300,000,000 

 per year on research. 



It is impossible to measure the indirect benefit of 

 organized industrial research, but it is often claimed 

 that research benefits management, since it increases 

 flexibilitj' in the face of changing conditions and leads 

 to the adoption of research methods in management 

 practice. Many annual corporation reports have cited 

 organized research as contributing to growth and 

 strengtli. A comparison of a group of companies 

 known to maintain strong research departments with 

 another group taken at random will show how research 

 and successful management run together. Whether 

 research is a significant factor in aiding good manage- 

 ment or whether it has merely been adopted by such 

 management is not easUy demonstrated. 



The relationship of labor to industrial research in- 

 volves chiefly the somewhat controversial question of 

 technological unemploj^ment. As contrasted with labor- 

 saving equipment, consolidations, plant relocations, 

 and many phases of technological changes, industrial 



' Transcript of discussion. Meeting, Committee on Survey of Research In In 

 dustry, December 6, 1939, p. 12. 



