MEASURING INNOVATION PERFORMANCE Presented by: Elona Marku 2 In this lecture Why is it important to measure innovation? How do we measure innovation? Which indicators can be used? The role of the technology markets 1
3 Why is it important to measure innovation?? 4 Why is it important to measure innovation? To fix the goals and monitor their achievement To allow comparison: Between different firms In different moments To help management in the decision-making 2
5 How do we measure innovation?? 6 How do we measure innovation? DIFFICULTIES Intrinsic complexity of the innovation process focuses on mechanisms of generation and use of knowledge (explicit and tacit) doesn t coincide with the formal R&D activity sometimes what we measure doesn t represent the real innovation performance Uncertainty: difficulty to be assessed as well 3
7 Different perspectives 8 Which are the main indicators? The literature offers many indicators for the innovation performance measurement Indices with very different characteristics Scholars, among years, have highlighted the need to adopt a plurality of partial measures in order to better assess the innovation performance The object of the measurement: Input Output Value of innovation 4
9 MAIN INDICATORS INPUT R&D Expenditure R&D Intensity (R&D expenditure/sales) Number of researchers OUTPUT Number of patents Number of publications/citations Number of announcements of new products 10 R&D Expenditure Measures the firm s innovative efforts in monetary terms Limits: Captures only formalized activities R&D is only a component of the innovative process Tends to overestimate the R&D activities of big firms 5
11 Number of Researchers Measures the innovative efforts evaluating the individuals involved Limits: Captures only formalized activities It is a partial measure Tends to overestimate the R&D activities of big firms 12 INPUT INDICATORS ADVANTAGES Detailed data when available Easy to measure Easy to compare Good proxy of the innovative efforts DISADVANTAGES Capture only partially the firm s ability to innovate May not reflect the real efforts in specific period of time, innovation is a cumulative process Leave out other important inputs: training, learning by doing/using, synergies, spillover effects, etc. 6
13 OUTPUT INDICATORS Number of patents Number of publications/citations Number of announcements of new products 14 NUMBER OF PATENTS Captures the firm s inventive activity Allows the mapping of competencies by the means of the technological classes Limits: Not all patents are innovations Not all inventions are patentable (novel, non-obvious, utility) The propensity to patent varies among sectors Tend to overestimate big companies Blockades: Defensive Offensive 7
15 Patents in historical perspective US Patents granted per 1000 population 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 16 Number of publications/citations Measures the scientific output Citations and the quality of innovation Limits: It is a partial measure Not easily available data There exists a bias that favors publications in English Great heterogeneity 8
17 Announcement of new products Measures the final result of the innovation process Allows to capture information about the commercialization of new products (not their success) Limits: It is a partial measure Difficulties to gather data for sampling Great heterogeneity and discretion among firms Relationship between patents, inventions and innovation 18 (Source: Basberg, 1987) 9
19 Relationship between R&D, patents and new products (Source: Hagedoorn & Cloodt, 2003) 20 THE VALUE OF INNOVATION Measurement issues It cannot be directly measured Indirect measures (profit variations, productivity) react slowly from the moment in which the innovation has been realized However it is possible to use two proxies: The share price The value of patents (and their quality) 10
21 THE VALUE OF INNOVATION cont d The share price roughly reflects the value of the firm and its expected cash flows (discounted) Limits: Only small variations of the share price are connected with variations of the innovation performance (<10%) The market evaluation may be misleading 22 THE VALUE OF INNOVATION cont d The use of patents as a signal to markets Great heterogeneity of the value of patents The value of a patent can be approximately assessed using two key information: Citations: more citations a patent receives, higher its importance and consequently its value is Renewals: the longer fees are paid, the higher a patent's implied value is (Harhoff et al. 1999) 11
23 THE VALUE OF INNOVATION cont d The use of surveys to assess the value of patents Telephonic contacts with the patent owners or inventors QUESTION If 15 years ago you knew what you now know about the profit history of the invention abstracted here, what is the smallest amount for which you would have been willing to sell this patent to an independent third party, assuming that you had a bona fide offer to purchase and that the buyer would subsequently exercise its full patent rights? 24 What are technology markets? 12
25 TECHNOLOGY MARKETS The players (parties) have the opportunity to exchange different technologies: Hardware (ie. acquisition of tangible assets) Software, Intellectual Property (IP) rights, Industrial Designs, etc. The increasing role of the IP systems has highly contributed to the growth of these markets 26 TECHNOLOGIAL MARKETS cont d The main advantage is related to the possibility of splitting the different phases of the innovation process between different organization. Division of the innovative work Technological brokers 13
27 TECHNOLOGIAL MARKETS cont d The development of the technology markets determines: Firms have opportunities not only to acquire new technologies but also to realize incremental profits Firms with lower innovation performance can acquire technologies with higher quality, improving their efficiency In this way, the whole process of resource allocation of the economic system, is enhanced as well 28 In the next lecture Appropriation of the innovation value Patents Copyrights and related rights Industrial Design Trademarks Secrecy Strategic use of the Intellectual Property Rights Particular focus on: Patent analysis Patent citation analysis Patent co-citation Patent trends (technological dimension) 14
29 QUESTIONS? THANK YOU FOR YOUR ATTENTION! For contacts: elona.marku@unica.it 15