Chapter 1

INTRODUCTION
1.1 Introduction

Innovation is when an organization introduces new processes, services or products to achieve

positive changes in the company for their business. This will include improving existing methods
or practices, or starting from scratch. Finally the goal is to revitalize the business, create new
value and promote growth and/or productivity.

Business innovation matters for one simple reason: value. so as for your business to thrive, it's
crucial to be continually innovating and improving. Successful business innovation means
coming up with new revenue opportunities, increasing existing channels and ultimately generate
higher income. It should also give companies a plus over their competitors.

1.2 Three models of business innovation

There is quite a method to innovate and organisations of various ages and sizes will have
different reasons for embarking on a process of business innovation. for a few it's going to be a
case of re-assessing the ways during which the business generates revenue, for others it's going
to be necessary to make an endeavour into a special industry altogether - or maybe to make a
fresh one! Before embarking on any innovation cycle, it's important that organisations
understand the varied different business innovation models available to them.

1. Revenue model innovation:

If increasing profits is that the main driver for business innovation, many organisations
may prefer to change their revenue model as a primary step. this will involve re-assessing
the products or services offered or taking another check out on the company’s pricing
strategy. Innovation doesn't need to be radical, sometimes changing even one element can
yield significant results.
2. Business model innovation:

This model of business innovation requires organisations to spot which of their processes,
products or services might be improved to spice up the company’s portability. Innovation
during this case could ask forming new partnerships, outsourcing specific tasks or
implementing new technologies.

3. Industry model innovation

Arguably the foremost radical model of business innovation, ambitious organisations can
prefer to change industry completely for the needs of innovation - or maybe create an
entire new industry for themselves. Indeed, companies can win a replacement lease of life
by following examples like Virgin’s move from aeroplanes to broadband.

Your business potential energy is everything that adds P.E. which can be utilized in increasing
the performance of your company. Everything new can bring additional fresh business P.E. into
your company. New innovative products, Service or business model innovation will differentiate
your company from other companies in the market Can bring more potential to your small
business. whenever once you bring something new in your usual business processes, it'll increase
your business Potential energy

1.3 Benefits of R&D for companies

 Innovation will enable the expansion of your company.

The innovation of new products, services, processes or business models that the company
will automatically use it means growth for your company. These innovations can bring
expansion to new markets and new customers Segmentation, additional revenue streams
and higher profitability. Without innovation you'll still be the same , and even your
 current customers and potential customers want something more, something still
unexpected, and something better for them.

 Innovation will make your company more efficient company.

If your company could also be a corporation that invests and use innovation as something
usual on an everyday level, then you're someone who continuously works on
improvement of your current processes and implements totally new processes so on
become a more efficient company. Improvements within the present processes and
creation of totally new processes are outputs from the innovation process in your
company.

 Innovation will assist you in creating the innovative brand for your company.

Think for the instant about the businesses that have left a robust impression on you. Who
they are? What they are doing? Why they impressed you? Answer these questions and
you will see that their innovativeness are some things that lies deep inside their success in
impressing share their high impression with people .

 Innovation will help your company in attracting more customers.

Each word and each sentence that comes from the individuals outside your company
distributes a high level of trust and reputation at the same time creating a high level of
attraction for your company. once you innovate products and services that bring value to
your customers, you can’t stop people to talk about you, your company and your
innovations. In such how, you'll attract far more easily far more customers. Once you
invest in innovation it'll help your company in attracting the upper workforce. Everyone
wants to work for somebody who brings a deep imprint on the earth during which we
live. Your innovativeness won't only improve your company or assist you in growing, but
 it'll also assist you in attracting really powerful workforce who will assist you in
expanding and improving everything that you simply do now.

1.4 The role of innovation in business

Now, that we’ve defined what innovation means, we will take a glance at what the role of
innovation is, both for the society at large, also as for individual businesses.
First, for the society at large, innovation may be a key driver of economic process. consistent
with a Stanford University paper, roughly 85% of all growth that happened within the US
economy between 1870 and 1950 are often accounted to productivity growth via innovation, and
this is not just a private anomaly. consistent with an equivalent paper, there have also been nearly
identical findings in other economies several times.

Thus, a private business, clearly, would be foolish to not pursue these opportunities that account
for 85% of all economic process.

In the previous couple of decades, we’ve seen a robust trend towards so called “winner take
most” economies where a couple of companies are ready to create superior market positions and
bring home the overwhelming majority of profits in an industry, like online search and computer
operating systems.

What makes things worse for the remainder is that these dominant players who are riding a wave
of innovation and pursuing a market leading position are often ready to undercut the entrenched
competition in price, also as prepared to burn tons of money to realize market share and drive the
competition out.

To top it all, we also are seeing variety of upcoming so called “innovation platforms” that are
likely to drive unforeseen levels of market disruption virtually across all industries within the
next few decades

So, for a given business to grow, increase profits, or maybe survive within the future, it's very
likely to wish innovation to realize any, including all, of the aforementioned goals. Traditionally,
innovation has been almost synonymous with R&D. the thought is that basic research results in
new inventions, which are then patented (if possible) and developed into commercial
applications.

While there's still certainly an area for this type of innovation, the web has fundamentally
changed the sport. Information, knowledge, and state-of-the-art tools and software are now
available almost immediately and at a fraction of the previous cost in almost any industry.

As a result, most innovation isn’t an immediate results of commercializing basic research,

because it once was, but is more often about applying existing knowledge, technologies, and
resources to unravel a given business problem. In other words, it’s about putting the pieces of the
puzzle together.

There are always many business processes in every organization. Often these processes are
formalized, but there are usually also a minimum of some informal processes. These
processes were all created for a reason but only a couple of them are perfect. as an example,
many of these processes probably haven’t changed, albeit the underlying business has
changed.

Thus, there are typically many opportunities where even minor adjustments could lead on to
significant savings in cost or time. the sweetness of addressing these low-hanging fruits is
that the benefits start to compound quickly, which ends up during a big impact within the top
of the day.

So, if you’re unsure where to start out innovating, asking your employees how they’d
improve this processes related to their own work may be a simple because of start and gain
some momentum for innovation. It’s virtually sure to cause useful improvement and are
some things everyone can relate to.

Research and development (R&D) is that the a neighbourhood of a company's operations

that seeks knowledge to develop, design, and enhance its products, services, technologies, or
processes. Combined with the development of new products and the addition of functions to
old products, investment in R&D links various parts of the company's strategy and business
plan, such as marketing and discount.

Some advantages of research and development are clear, just like the likelihood for increased
productivity or printing operations. the inside Revenue Service offers an R&D decrease for
businesses. Some investors look for firms with aggressive R&D efforts. In some cases, small
businesses are bought out by larger firms within the industry for his or her R&D.

Research and development includes investigative activities that private individuals or

companies choose to engage in Discover the desired result and create a brand new product,
product line or service. R&D rarely creates new products because it is usually used to
enhance existing products or services has other functions.

Research refers to any new science or ideas that can be terminated during the replacement of
products or new features. Existing products. Research is usually reduced to basic research or
applied research. basic research Trying to explore scientific principles from a tutorial
perspective, while applied research attempts to use the basic knowledge. Research in the real
world

The development portion refers to the actual application of the new science or thinking so as
that a replacement or increasingly better product or service can begin to need shape.
Research and development is indeed the first step in developing alternative products, but
development is not limited to research and development. R&D and development shooting
can ask about the entire product life cycle, from conception to sales to renewal to scrapping.

Innovative work is actually the initial introduction to build up another item, yet item
advancement isn't solely innovative work. A branch of R&D, item advancement can allude
to the whole item life cycle, from origination to deal to revamp to retirement.

In 1981, the U.S. Internal Revenue Service (IRS) began to provide tax relief for companies
to spend money and hire employees to achieve Research and development. Eligible
companies include start-ups and other qualified small businesses Research expenses. Such
expenses are often used to set tax liabilities, in conjunction with a strong 20-year carry-
forward provision for the credit.

Many entrepreneurs and tiny businesses have made an outsized sum of money during a brief
time by selling good ideas to established firms with many resources. Buyouts are particularly
common with Internet companies, but they're going to be seen wherever there's plenty of
incentive to innovate.

Advertising is crammed with claims about revolutionary new techniques or never-before-

seen products and technologies. Consumers demand new and improved products, sometimes
simply because they're new. R&D departments can act as advertising wings within the
proper market.

R&D strategies allow companies to develop efficient marketing strategies around the release
of alternative products or existing products with new features. A corporation can create
innovative marketing campaigns that match the inventive products and increase market
participation. Innovative new products or functions can increase market share by providing
customers with unprecedented products.
In many cases, technology required for industrial purposes is out there within the
marketplace—for a price. Before embarking on the lengthy and risky process of performing
its own R&D, a corporation can perform a "make or buy" analysis and choose whether or not
the new R&D project is justified. Factors that influence the choice include the power to
guard the innovation, its timing, risk, and cost.

1.5 Characteristics of r&d

1. Proprietary characters

Propriety and its value is higher In fact, a legitimate patent grants a corporation a short
lived monopoly for 17 years to use the technology because it sees it, usually to
maximise sales and profits. during this case, a high-level of R&D effort is justified for a
comparatively long period (up to 10 years) with a suitable risk of failure.
 On the contrary, if the technology can't be protected, as is that the case with certain software
programs, expensive in-house R&D isn't justified since the software could also be copied by
a compeIf a technology is usually protected as proprietary technology and protected by
patents, trade secrets and confidentiality Agreements, etc.-technology becomes the
company’s exclusive protitor or "stolen" by a disloyal employee. during this case, the key of
economic success is staying before competition by developing continuously improved
software packages, supported by a robust marketing effort.

2. Timing
If the market rate of growth is slow or moderate, in-house or contracted R&D could also be
the simplest means to get the technology. On the opposite hand, if the market is growing in
no time and competitors are rushing in, the "window of opportunity" may close before the
technology has been developed by the new entrant. during this case, it's better to accumulate
the technology and related know-how, so as to enter the market before it's too late
3. Risk
Inherently, technology development is usually riskier than technology acquisition because
the technical success of R&D can't be guaranteed. there's always the danger that the planned
performance specifications won't be met, that the time to project completion are going to be
stretched , which the R&D and manufacturing costs are going to be above forecasted. On the
opposite hand, acquiring technology entails a way lower risk, since the merchandise ,
process, or service, are often seen and tested before the contract is signed.

Regardless of whether the technology is acquired or developed, there's always the

danger that it'll soon become obsolete and be displaced by a superior technology. This
risk can't be entirely removed, hence they are often considerably reduced by careful
technology forecasting and planning. If market growth is slow, and no winner has
emerged among the varied competing technologies, it's going to be wiser to watch these
technologies through "technology gatekeepers" and be able to jump in because the
winner emerges.
4. Cost
For a successful line with relatively long life, acquisition of technology is more costly, but
less risky, than technology development. Generally, royalties are paid within a relatively low
initial payment ("good faith") and regular payments linked to sales. These payments
continue throughout the amount of validity of the license agreement. Since these royalties
may amount to 2 to 5 per cent of sales, this creates an undue burden of continuous higher
cost to the licensee, everything else being equal. On the opposite hand, R&D requires a high
front-end investment and thus a extended period of negative income There also are
intangible costs involved in acquiring technology—the license agreements may have
restrictive geographic or application clauses, and other businesses may have access to an
equivalent technology and compete with lower prices or stronger marketing. Finally, the
licensee depends upon the licensor for technological advances, or maybe for maintaining so
far, and this might be dangerous

4.6 Moving ahead with r&d

R&D are often conducted in-house, under contract, or jointly with others. In-house R&D
commands a strategic advantage: the company is that the only owner of the know-how
created and should protect it from unauthorized use. R&D is additionally basically a learning
process; in-house research thus trains the company's own research folks that may still ever
better things.
External R&D is typically contracted bent specialized non-profit research institutions or to
universities. These institutions often have already got experienced personnel within the
disciplines to be applied and are well equipped. The disadvantages are that the corporate
won't enjoy the training experience and should become overly hooked in to the contractor.
The transfer for the technology may end up to be difficult and leaks to competitors may
develop. Using university research is usually slightly less costly than engaging institutes
because graduate students instead of professionals do a number of the work.
After relaxing antitrust laws and providing tax incentives to R&D consortia, joint R&D
became popular in the United States. In a consortium, several companies with the same
interests unite to conduct research and development in a separate organization or university.
the benefits are lower costs, since each company doesn't need to invest in similar equipment;
a critical mass of researchers; and interchange of data among the sponsors. The
disadvantages are that each one the sponsors have access to an equivalent R&D results.
However, out of antitrust considerations, the R&D conducted must be “pre-competitive”,
which is legal, which means that the R&D must be basic and/or preliminary. a corporation
must take joint research beyond the "joint" stage to form money on it; it can use this sort of
result because the foundation, not because the innovation itself.

1.7 R&D project selection, management, and termination

Industrial R&D is usually aligned with projects with specific technologies (ie, separate work
activities) And business goals, assigned personnel, and time and money budget. These items
can originate from the "top Down" (e.g., based on managers’ decision to develop alternative
products) or "Down" e.g. The idea was initiated by a private researcher. . the dimensions of a
project may vary from a part-time effort of 1 researcher for a couple of months with a budget
of thousands of dollars, to major negative- or ten-year projects with large, multidisciplinary
teams of researchers and budgets of many dollars. Therefore, project selection and
evaluation is one of the more critical and difficult topics in R&D management that are
equally important. Although it is rarely emphasized in practice, this problem is subject of
project termination, especially in Unsuccessful or marginal project.

 Selection of r&d project

Usually, the number of items required by the company or laboratory is more than usual
Effectively implement. Therefore, R&D managers face the problem of allocating scarce
resources. Personnel, equipment, laboratory space and funding for a large number of
competing projects.
To start out on an R&D project is both a technical and a business decision, R&D managers
should select projects on the idea of the subsequent objectives, so as of importance:
1. Maximize the long-term return on investment;
2. Make full use of existing human and material resources;
3. Maintain a balanced R&D portfolio and control risks;
4. Foster a positive climate for creativity and innovation.
Project selection is typically done once a year, by listing all ongoing projects and therefore
the proposals for brand spanking new projects, evaluating and comparing of these projects
consistent It has quantitative and qualitative standards, and prioritizes projects in the order of
"totem poles". The funds requested by all the projects are compared with the laboratory
allow the subsequent year and therefore the project list is stop at the budgeted amount.
Projects above the road are funded, those below the road delayed to the subsequent year or
tabled indefinitely. Some experienced R&D managers don't allocate all the budgeted funds,
but keep a little percentage on reserve to require care of latest projects which will be
proposed during the year, after the laboratory social budget has been approved.

 Evaluation of r&d projects

Since R&D projects are subject to the danger of failure, the arithmetic mean of a project are
often evaluated consistent with a statistical formula. the worth is that the payoff anticipated
—but discounted by probabilities. These are the probability of technical success, the
probability of economic success, and therefore the probability of monetary success.
Consequently, project evaluation must be performed along two separate dimensions:
technical evaluation, to determine the probability of technical success; and business
evaluation, to determine the payoff and therefore the probabilities of economic and financial
success. Once the arithmetic mean of a project has been determined it are often compared
with the projected cost of the technical effort. Given a company's usual rate of return on
investment, the value might not be well worth the arithmetic mean given the risks. Needless
to mention, such statistical approaches to evaluation aren't silver bullets but nearly as good
because the guesses that enter the formula. Businesses use such evaluations, however, when
many projects compete for money and a few quite disciplined approach is required to form
choices.
The management of R&D projects basically follows the principles and methods of project
management. Have, However, for normal engineering projects, there is a caveat: R&D
projects are risky, and Strive to formulate an accurate budget based on technical milestones,
costs, and time required to complete tasks Various tasks. Therefore, the R&D budget should
be considered temporary initially and will follow

The initial work and learning process will bring more information. Historically, many R&D
projects have exceeded the expected scope, and sometimes even have disastrous
consequences. Budget completion time and expenditure within the case of R&D, measuring
technical progress and completion of milestones is usually more important than measuring
expenditures over time.

 Termination of R&D Projects:

Termination of projects may be a difficult subject due to the political repercussions on the
laboratory.
Theoretically, a project should be discontinued for one among the subsequent three reasons:
1. there's a change within the environment—for instance, new government regulations, new
competitive offerings, or price declines—that make the new product less attractive to the
company;
2. Unforeseen technical obstacles are encountered and therefore the laboratory doesn't have the
resources to beat them; or
3. The project falls hopelessly not on time and corrective actions aren't forthcoming.
Due to organizational inertia, and therefore the fear of antagonizing senior
researchers or executives with pet projects, there's often the tendency to let a project
continue, hoping for a miraculous breakthrough that seldom happens.

Theoretically, an optimal number of projects should be started, and over time, this number
should be gradually reduced to make room for more worthwhile projects. Also, the monthly
cost of a project is far lower within the early stages than within the later stages, when more
personnel and equipment are committed.
Thus, from a Financial risk management viewpoint, it's better to waste money on several
promising young projects than on a couple of maturing "dogs" with low pay out and high
expense. In practice, in many laboratories it's difficult to start out a replacement project
because all the resources have already been committed and even as difficult to terminate a
project, for the explanations given above.

Therefore, capable R&D managers should constantly evaluate His/her project portfolio
should refer to changes in the company’s strategy and should continue to be objective
Monitor the progress of each R&D project and terminate projects that have lost their value
without hesitation The company’s revenue and success rate.
In the end, innovation is undoubtedly hard, and it comes with a big risk of failure. Thus, it
are often tempting to think that you simply can do without it. However, a good bigger risk
isn't innovating. Without innovation, you're simply put bound to leave of business, it’s just a
matter of your time . The good news is that anyone can learn to innovate.. It can get complex
at scale, but you'll start small and gradually bite bigger pieces as you recover . hence the
earlier you begin , the earlier you’ll reap the advantages and reduce the outsized risks related
to not innovating.
 CHAPTER 2
REVIEW OF LITERATURE &
RESEARCH DESIGN

2.1 Introduction:

As per the Oxford Dictionary, Innovation is, 'Making changes to something set up by
presenting something 'new', mistook for change, development, plan and imagination,
however attributes of advancements make it not quite the same as these terms. Business
advancement might be through dispatching new items or new species, Sales of known items,
use of new item creation or deals strategies (not yet demonstrated in the business), opening
of new business sectors (showcases that are not yet spoken to by parts of the business),
procurement of new assets, gracefully of crude materials or semi-completed items, new
Industry structure, (for example, making or annihilating a syndication position) or whatever
other comparable circumstance where there has been no style in this manner previously.
Thusly, it goes about as an intermediary for valuable change in substance effectiveness,
efficiency, quality, intensity and piece of the overall industry. Along these lines,
development influences the association, yet in addition the encompassing partners, as it
advances the nation's financial development.

2.2 Review of literature:

Sharipov k, sharipov kongratbay in 2020 made a study on the importance of quality

management in innovative investment development of commercial enterprises of uzbekistan
(on the instance of andizhan automobile industry). this text introduces the size of the
automotive industry, the role and influence of high-tech products within the structure of total
industrial output value, which may be a factor affecting the country’s GDP growth

Amoroso S, Moncada-Paternò-Castello P, & Vezzani A in 2017 made a study on R&D

profitability: the role of risk and Knightian uncertainty was published in Small Business
Economics, this text provides the primary evidence plan to link the company's profit and
investment review the R&D and distinction between uncertainty and risk. And concluded
that R&D investment is crucial when uncertainty and turbulence are high. during this
context, R&D policies might be particularly effective by preventing firms to lower their
R&D efforts (as a consequence of ambiguity) especially when returns to R&D are expected
to be higher

Czarnitzki, D., & Kraft, K in 2010 made a search on the profitability of innovative assets.
Applied economics, and showed the Results of the Effect of Patent Stock on Profitability and
said that facts have proved that the stock of patents features a strong impact on profitability
and They found evidence on the positive impact of innovation on profits, this is often just
one a part of the story. The returns need to be compared with the prices , and at the present
have only limited information on those. One would wish an extended times series on R&D
expenditures because the input to the innovative process (and not just the info from one year
as within the present study). Then the consequences of the general outlays for profits in later
years need to be calculated. this is able to be the “true” test on the profit effects of innovative
activity.

Hanel P & St-Pierre A in 2002 made a study Effects of R & D Spill overs on the
Profitability of Firms. Review of commercial Organization, and interpreted that profitability
of firms benefits also from the R&D content of inputs and equipment purchased from other
industries. These “market spill overs” create social benefits and productivity gains that show
up within the profits of downstream rms.

Fernández S, Triguero Á, & Alfaro-Cortés E in 2019. M&A effects on innovation and

profitability in large European rms. Management Decision. The analysis of 562 mergers and
acquisitions authorized by the EC Merger Control Bureau shows that the merger has had a
positive impact on the R&D intensity and profitability of the highest EU companies from
2004 to 2012

Zhu Z, & Huang F in 2012 conducted a study on The effect of R&D investment on firms’
financial performance as an evidence from the Chinese listed IT firms and concluded that A
firm has got to over and/or the processes wont to deliver the products and services and also
to strengthen the competitive power in today’s business world supported new technology
innovation . So, R&D has also been referred to as one key strategic factor to firm’s
sustainable competitive capability.

Andras T. L, & Srinivasan, S. S in 2003 made a study on Advertising intensity and R&D
intensity: Differences across industries and their impact on firm’s performance and
published it in International Journal of Business and Economics and concluded that While
the market-based assets of advertising and R&D are often among the primary areas to face
budget cuts during times of competitive and economic stress, it should be remembered,
given the results of this study, that both of those variables are positively and significantly
associated with firm’s performance.

Kohtamäki M, Partanen J, & Möller K in 2013 conducted a search on the subject Making
a profit with R&D services—The Page 1 critical role of relational capital and published it in
Industrial marketing management. They concluded saying that The results evidence the
positive moderating impact of relational capital on the link between supplier's R&D services
and supplier's profitability within the customer relationship. additionally , the results
demonstrate the direct impact of relational capital on supplier's profitability

Johansson B, & Lööf H in 2008 conducted a study on The impact of firm’s R&D strategy
on profit and productivity and concluded that everything else equal, persistent R&D
associates with higher (i) productivity level and (ii) profitability level. Another finding is that
the cross-section impact of employing a technique with persistent R&D becomes stronger
when the regressions control for corporate ownership structure. this means that the
consequences on productivity and profitability are especially strong for multinationals with
persistent R&D

Mata J, & Woerter M in 2013 conducted a search on Risky innovation: The impact of
internal and external R&D strategies upon the distribution of return and. found that external
strategies exert a positive impact upon performance. The estimated magnitude of this effect
is bigger than the estimated impact of conducting in-house R&D activities only and therefore
the former is clearly significant while the second isn't .

Cassiman B, Di Guardo M. C, & Valentini G in 2009 made a study on Organising R&D

projects to take advantage of innovation: Insights from co-petition. Long Range Planning. And
said that technological innovation results from the joint creation eort of various players within
the value chain, like suppliers, customers, research centres and universities.
Balancing cooperation and competitiveness in the innovation process to jointly create value and
obtain part of it has become the key to using innovation. In this article, we prove that there is a
tension between value creation and value acquisition in every R&D project.. Taking
STMicroelectronics as an example, we It shows that the balance between cooperation and
competitiveness in R&D projects is formed by careful alignment of three variables:
Project knowledge attributes, project governance structure (internal development, cooperation or
contract) and selection of project partners (Company or university). The ability to match these
three elements illustrates the success of the STMicroelectronics innovation process. Based on
experience in this report, we provide some practical guidance for managers on how to organize
these cooperation and competitiveness research project.

Liu Z, & Wang D in 2013 made an Analysis of profit allocation in technology innovation
alliance game model of commercial chain and published in Canadian science. In the situation
that the market demand is sensitive to technology innovation on the market, the sensitivity of the
demand for innovation will change the general profit of the industry chain. Through research, we
reach conclusion that the all-league not only maximizes the advantages of alliance, but also
maximizes the advantages of single enterprise. and that we dish the profit distribution
mechanism within the all league and half-league by the status of the upstream and downstream
enterprises and therefore the proportion of technological innovations. In response to those
findings, we believe that there are the subsequent policy implications:(1)The substantive
cooperation in technology innovation alliance can maximize the advantages of alliance, and
promote the stable operation of the alliance; (2)The different modes of alliance can affect the
profit distribution mechanism of alliance;(3)The government should establish the profit
distribution mechanism of technology innovation alliance through policy guidance, and promote
the substantive cooperation of alliance.

Love J. H, Roper, S, & Du, J in 2009 made an Innovation, ownership and profitability and
published it in International Journal of commercial Organization. Although there's a considerable
body of literature on the link between innovation and profitability, there's little or no evidence on
the inter-relationship between innovation, ownership and profitability. Our results suggest that,
in profitability terms, innovators aren't simply plants that innovate: their level of profitability is
subject to different determinants from those of non-innovators. Innovators are ready to insulate
themselves from economic process to some degree: within the case of indigenous plants, a
minimum of a part of which is due to innovating itself. Equally important is that externally-
 owned plants, most of which are innovators, have markedly different profitability determinants
from indigenous enterprises, and these differences aren't directly linked to the very fact of
innovation intrinsically. While innovation may be a competitive weapon for indigenous plants,
it's simply a fact of life for externally-owned plants. These plants compete, and have their
profitability

2.3 Statement of problem

The central idea of this research is to check whether there is a link between profitability of
the company and innovation activities done through investment in R&D, Even if the link is
two-way, due to the availability of free cash flow and the increase in disposable income,
higher profitability will lead to innovation, and higher innovation capacity will lead to higher
market share, economies of scale and Cost-effectiveness, thus contributes to profitability, as
demonstrated in previous studies

2.4 Objective of the study & hypothesis

 A study on the relationship between innovation investment and profitability of the
company
 To access the moderating effect of ownership structure on association between
innovation investment on the profitability.

2.5 Conceptual model:

INDEPENDENT VARIABLE DEPENDENT VARIABLE

 R&D Expenditure  NET PROFITS

 RETURN ON ASSETS
 RETURN OF EQUITY

 Description of variables considered for study

Variable Acronym used Description of the variables
Moderating Variables
 No. of Directors MOD_N_D Total Number of Directors a
Company is Having in Board
No. of Independent MOD_N_ID Total Number of Independent
Directors and Non-executive Directors
Concentrated MOD_FAM_O Concentrated % Age of Shares
Ownership WN Held by Individual/Family/HUF
Institutional MOD_INST_O Concentrated % Age of Shares
Ownership WN
Held by any Association or
Institute
Foreign Ownership MOD_FOR_O Concentrated % Age of Shares
WN Held by Any Person/Family/
Association or Institute Living or
Incorporated Outside India

Control Variables
Sales Sales Net Sales of the Period Taken
Proxy for Size of Company
Market Capital MKT_CAP Total Market Value of all of a
Company’s Outstanding Shares
Current Ratio CR Proxy for Liquidity

2.6 Hypotheses
HO: There is no significant relationship between innovation investment and profit of the
company
H1: There is a significant relationship between innovation investment and profit of the
company

2.7 RESEARCH METHODOLOGY

 Nature of research:
A Causal research was conducted to identify the change in variables caused by other
variables,
 Sampling plan:
In order to obtain representation from all financial, manufacturing and other sectors, the
sample is taken from a broad-based Indian capital market benchmark, the CNX 500
index, which accounts for approximately 95.77% of the free float market value of listed
stocks in NSE. The sample has been taken from 5 companies, excluding the companies
in which the sample do not have R&D investment or data are not available, or the
companies remain inconsistent on the index.

 Sources of data:
Secondary data was collected from various websites for this study, the data is taken for 5
years of study time from 2016 to 2020
 yahoo finance,
 money control.com
 Company’s official website

 Tools for data analysis:

Multiple regression equation was used to find the significance variance with the help of
SPSS software

2.8 Limitations of the study:

 The study was limited only for the period of nearly 60 days so that extensive study is not
possible
 This study will be considering only 5 companies which have good R&D Investment
 This study will not be considering the companies which do not have R&D Investment
 This study will not be considering the companies which are not listed

2.9 Operational definition of concepts

 Innovation:
 It's the creation, development and implementation of a replacement product, process or
service, with the aim of improving efficiency, effectiveness or competitive advantage

 Investment:
It's an asset or item acquired with the goal of generating income or appreciation.
Appreciation refers to a rise within the value of an asset over time. When a private
purchases an honest as an investment, the intent isn't to consume the great but rather to
use it within the future to make wealth. An investment always concerns the outlay of
some asset today time, money, or effort in hopes of a greater payoff within the future than
what was originally put in.

 Innovation investment:
Expenditure on innovation includes total expenditure incurred by firms for the subsequent
activities: intramural R&D; extramural R&D; acquisition of other external knowledge
(e.g. patents, licences, trademarks); and acquisition of machinery, equipment and
software)

 Research and development:

Research and development (R&D) includes activities that companies undertake to
innovate and introduce new products and services. it's often the primary stage within the
development process. The goal is usually to require new products and services to plug
and increase the company's bottom line.

 Profitability:
Profitability may be a measurement of efficiency – and ultimately its success or failure.
an extra definition of profitability may be a business's ability to supply a return on an
investment supported its resources as compared with an alternate investment.

 Shareholders return:
Shareholder return (TSR) (or simply total return) may be a measure of the performance of
various companies' stocks and shares over time. it's calculated by the expansion in capital
 from purchasing a share within the company assuming that the dividends are reinvested
whenever they're paid.

 ROE:
Return on Equity means how much company has earned for every unit of shares

 ROA:
Return on Assets is how much the company has earned in respect to its assets

2.10 CHAPTER SCHEME:

 Chapter 1: Introduction
Introduction includes the broad and the specific area of research and also the theoretical
perspective about the topic

 Chapter 2: Review of literature & Research Design

Includes all the information and sources explained along with the objectives, hypothesis,
method of study, scope and limitations

 Chapter 3: Organizational Study

Includes the analysis of the company as a whole with consideration of various aspects
i.e., industry, company, department, product profile along with structure and SWOC
analysis.

 Chapter 4: Results, Analysis, and Discussion

Includes the results from the survey analysis and interpreted and the outcomes are
discussed with whole figures and data.

 Chapter 5: Summary of Findings, Conclusions, and Recommendations

The analysis data is converted into findings and the whole study is concluded and the
recommendations to the company for practical application of the study.