It is difficult to measure innovation, but the West remains ahead
Innovation is widely acclaimed as a cornerstone for business and societal development, but innovation is tricky concept and difficult to measure and analyse. Earlier today Thompson Reuters published their 2011 Top 100 Global Innovators report in which they identify companies that are “truly the world leaders of innovation and economic growth.” An indicator of the importance of these 100 companies that they created more than 400,000 new jobs in 2010, which they argue is far better than comparative companies.
How should we measure innovation?
Research and development (R&D) has often been used as a proxy for innovation based on the simple idea that the more research the more innovation. A problem with R&D as a chief measure is that research is not an important dimension of many industries, including services. More profoundly, innovation is not equal to research since research costs money and innovation creates it (and other values). In fact, in a previous article in this collection I have argued that “A grand illusion of politicians (and university people) is that more millions in research funding automatically results in national wealth creation.”
Another frequently used measure is intellectual property, especially patents, in companies. The assumption is that an efficiently operating intellectual property system is critical to the ability to spur innovation and bring new services and products to the marketplace faster. In other words, intellectual property is what bridges innovation and economic growth. This is what the Thompson Reuters report is about.
In sum, they use four patent-oriented criteria:
- Success: The ratio of published applications to granted patents, over the most recent three years.
- Globality: The extent to which a patent is protected globally.
- Influence: How often a patent is subsequently cited by other companies in their inventions.
- Volume: Amount of patents.
So in terms of Innovation = Patents, how does the world look like?
- The United States leads the world in Semiconductor & Electronic Component Manufacturing
- Asia leads the world in Computer Hardware Manufacturing and Automotive Manufacturing
- Europe leads the world in Machinery Manufacturing and has more than half of the Top 100 Global Innovators in this category in Sweden
- France leads the world in Scientific Research and is the European nation with the most companies represented in the list
Judged by this metrics, USA remains the most innovative host country of innovative companies, followed by Japan, France, Sweden and Germany. The next five are Germany, Netherlands, South Korea, Switzerland and Lichtenstein: Most innovative host countries.
In other words, the winners are well known nations with developed industries and societal systems. Not surprisingly, these nations have some of the world’s highest GDP/capita and score high on similar measures of wealth and wealth creation.
What about industries? Given the metrics, patents, it is not surprising that manufacturing dominates but it is still noteworthy that semiconductors, electronics and computer hardware together with chemicals make up the top three most innovative industries. In these industries USA dominates. Consumer products, machinery and telecom and electrical products follow: Most innovative industries.
What companies are we talking about? Among the first ten we find global brands like, 3M, ABB, Airbus, Alcatel-Lucent, Alfa-Laval, Apple, Atlas Copco and BASF. I could not find any company based in a BRIC country, nor from any other Nordic country other than Sweden, but I am sure new contenders will be there in a few years.
Is patent the right proxy?
The number of innovation indexes out there is also growing since governments, business leaders, policymakers, and industry associations recognize the importance of innovation and want to measure it effectively.
Patent is a crude and imperfect measure of innovation, but one that lends itself to data gathering and analysis and it does provide a viable picture of where the action is. But what is really needed is a way to capture a range of factors, including investments in training, organizational change and competitive performance over time. Some kind of peer review where organizations rate each other’s degree of innovativeness might also be helpful.
We need to regard innovation as multidimensional and far more than new products or patents. New services, standards, business models, systems and leadership processes are parts of innovation too. But this will take time and developing global standards for measuring innovations is far away.
In the mean while we need to keep investing in research and education to cultivate the culture valuing scientific discovery and scientific methods as well as one of life-long learning and curiosity. Then ensure that the national innovation system is in place to encourage the transformation of new knowledge into new products, services, markets, industries, systems and processes that are seen as valuable and useful in they eyes of paying customers, in addition to patents.
Last week I was part of a group of private and public organization leaders who heard the new Danish minister of science, education and innovation say that the country really needs a new innovation strategy. I agree.
But, this is a clear and present challenge for all developed countries and that is why efforts like the OECD Innovation Strategy are so important. But, strategy means both differentiation and choice so replicating another country’s strategy is not the best way forward. It shall be interesting to see what the new Danish innovation policy will look like.