Using DEA to Evaluate R&D Performance of the Computers and Peripherals Firms in Taiwan

Article excerpt

ABSTRACT

Research & development (R&D) performance has been a competitive advantage for high-tech industries. This paper presents an empirical study in which we used Data Envelopment Analysis (DEA) to evaluate the R&D performance of 31 computers and peripherals firms located at Hsinchu Science-based Industrial Park in Taiwan. We found that the R&D performance is very different among the evaluated companies, though most of the companies are technically efficient. Moreover, we discussed possible directions for the inefficient companies to improve their R&D performance. In particular, we found that most of the inefficient companies should increase their scales to increase their relative efficiencies of R&D performance.

JEL: C44, C67, M11

Keywords: R&D performance; High-tech industry; Efficiency; Data envelopment Analysis; Hsinchu Science-based Industry Park

I. INTRODUCTION

New technologies and business models have had profound effect on how products and services are created and delivered, in particular as to the innovation, contents, delivery methods, systems, enabling technologies and management. The new information economy has been forcing high-tech companies to compete with each other through increasing R&D performance and decreasing cost simultaneously. An effective R&D operation is a major source of competitive advantage in today's rapidly globalizing economy. Thus, the evaluation of research & development (R&D) performance has been an important problem of both academic interest and practical need. To make decisions on R&D activity should be based on economic considerations more strongly, in order to estimate the opportunity cost and revenues of in-house R&D and to take these into account in costing (Brockhoff, 1998). In an exploratory investigation into R&D management practices, Cooper et al. (1997a, 1997b) conducted interviews in 35 leading firms in various industries and found the following key problems:

1) The portfolio of funded projects does not reflect the business strategy. There are disconnects between spending breakdowns on projects and the strategic priorities of the business.

2) The quality of R&D portfolio is poor. The success rates of funded projects are inadequate.

3) The Go/Kill decision points are weak. Funded projects tend to take on a life of their own.

4) There is a lack of R&D focus. Most firms confess to having too many projects for the limited resources available.

5) Some firms admitted to having too many trivial projects, i.e., modifications, updates and extensions, but too few projects to yield major breakthroughs and competitive advantage.

The computers and peripherals industry has been one of the most important components of the high-tech manufacturing industries worldwide. High-tech industry has the nature of high risks and high investment rewards. Because of the required creativity and innovation involved in R&D activities, evaluating R&D performance has been a difficult task. However, most of the managers of the high-tech companies rely on their experiences to evaluate R&D activities. In particular, the managers can hardly specify which factors contributing more or less to the R&D efficiency. Therefore, the managers do not know which factors they should enhance to increase the R&D performance of their companies. There are a number of R&D related studies on the selection of R&D projects (Chien, 2002), measuring R&D processes (Drongelen and Bilderbeek, 1999) the factors that affect R&D results (Brockhoff 1998; Morbey and Reithner, 1990) and measuring R&D performance (Brockhoff, 1998; Bilderbeek, 1999; Morbey and Reithner, 1990; Brown and Svenson, 1998; Gold, 1989; Werner and Souder, 1997). However, little research has been done on evaluating the relative efficiencies of R&D performances in the high-tech firms. …