Do manager's heuristics affect R&D performance volatility?

de Francesca Gino, Gary P. Pisano, Harvard Business School. Division of Research

R&D performance volatility plays a critical role in various industries. Prior work in the innovation and product development literature has examined the factors influencing various dimensions of R&D performance. However, still little is known about the volatility of R&D output over time at the firm level. In this paper, we use a simulation model to explore such phenomenon, with a specific focus on the pharmaceutical industry. We argue that the fluctuations in R&D performance over time, while rooted in the uncertainty characterizing the development process, can be exacerbated by the heuristics decision makers use in managing the firm's R&D project portfolio. In particular, we focus on the impact on volatility of two types of heuristics: resource allocation and project termination strategies. Implications for both research and management practice are discussed.