SECTION II 

 RESEARCH AS A GROWTH FACTOR IN INDUSTRY 



By Joseph V. Sherman 

 Fiduciary Counsel, Inc., New York, N. Y. 



ABSTRACT 



Research is receiving increasing recognition from 

 industrial management as a means of expanding earning 

 power through the (k>veIopnient of new products and 

 processes. That it has played an important part in 

 the growth of many companies and industries can 

 readily be demonstrated. To the investment analyst, 

 the research expenditures of various companies therefore 

 constitute an important factor in determining their 

 long-term outlook. Because of inade((uate data, it was 

 neccssar}' to estimate such expenditures based upon 

 the number of workers engaged. A survey was made of 



a cross section of American industry to determine the 

 average expenditure per worker and this was applied 

 to the number of workers reported to the National 

 Research Council. The estimated aggregates by indus- 

 try were related to the value added by manufacture in 

 1937. The results showed wide variation among indus- 

 tries in research expenditures per $100 value added by 

 manufacture, indicating vast opportunities for profitable 

 research in many industries in which it is at present 

 relatively neglected. 



Scientific research is one of America's fastest growing 

 industries. That it plays a vital role in the develop- 

 ment of new products and processes has in recentyears 

 received increasing recognition from those who occupy 

 positions of responsibility in practically all lines of 

 production. The rapid growth of industrial research 

 laboratories and personnel in the United States over a 

 period of years has been clearly demonstrated ; it remains 

 only to translate these findings into dollars and cents. 



Those who direct the flow of capital have been a little 

 more remote from industrial operations, where science's 

 discoveries and inventions bear fruit, than those who 

 actually supervise production, and it is not surprising 

 that they have been a little slower to grasp the impor- 

 tance of research. But what they have lacked in prompt- 

 ness they have made up in enthusiasm and today we 

 find the case for research being presented by many 

 companies in their annual reports to stockholders. 



The widening acceptance of the thesis that research 

 promotes the growth and increases the earning power 

 of companies is based upon records of a great nund)er of 

 cases where this has occurred rather than on any com- 

 prehensive analysis of data for industry as a whole. 

 It has been noted that those industries which have been 

 most active in research have shown the best growth 

 trends. 



Wlmt has been true of industries has also been true of 

 individual companies. Generally speaking, those com- 

 panies which are outstanding in their research activities 

 120 



are those which shape up as the best managed and suc- 

 cessful enterprises. The ability to take advantage of 

 the possibilities of research in expanding sales and 

 otherwise increasing earning power is a ver\- good indi- 

 cator of the alertness of management. 



The vital role of research in the chemical and other 

 rapidly expanding lines, where the em])hasis is on the 

 continuous development of new jjroducts, has been 

 pointed out frequently. Tiiat research deserves a large 

 part of the credit for the steady growth of the leading 

 chemical and electrical e(|uipment companies is widely 

 recognized. 



It is also well known that the rapid growth in con- 

 sumption of aluminum, nickel, vanadium, tungsten, 

 chromium and molybdenum, and other light or alloy 

 metals is due largely to research in developing new uses 

 for these metals. Research holds forth similar possi- 

 bilities for magnesium, beryllivmi, and many of the 

 lesser-known metals. 



The possibilities of research in the more seasoned 

 industries, however, are not so obvious. Yet there are 

 numerous cases of companies which have been enabled 

 to make a better than average showing or even covmter- 

 act an unfavorable trend in their established lines 

 through the development of new pi-oducts. 



This was strikingly illustrated in the agricultural 

 equipment field during the past decade. For some 

 time it looked as though the mechanization of the 

 farm had gone aboiit as far as it would. Then one 



