Challenges in measuring innovation competence

M. Rokonuzzaman | Published: June 27, 2018 21:45:06 | Updated: July 01, 2018 21:53:09

There is no debate about the correlation between innovation and economic growth. Innovation has been at the core of the growth of shareholders' return and consumers' benefit. But how to measure the success in developing underlying competence has been a challenge. Often innovation competence is measured by number of publications, patents and quality cum quantity of science and technology (S&T) graduates. But not necessarily is there any natural correlation between these indicators and profitable revenue generation as a result of innovation. For example, if quality S&T graduates remain unemployed, or remain employed in jobs which do not require the necessity of translating S&T ideas into products or process features, how can those graduates contribute to innovation? Similarly, if patents and publications are not translated into products and process features through increasing the willingness to pay and/or reducing the cost, how do those intellectual properties contribute to economic growth? In the absence of a clear understanding about measuring the competence for innovation, often investment made to facilitate innovation leads to wastage of resources.

Innovation competence measurement is very critical for developing countries, as these countries are attempting to exploit innovations to support continued economic growth. The primary objective of innovation for these countries is to empower firms to keep generating increasingly profitable revenue. Where should limited investment go to maximise return from investment in case of innovation is a key question. Here are a few examples regarding the misleading roles of typical indicators.

We often believe that patents are keys to successes in innovation for driving economic growth. The proposition is that, if access to patents is achieved, it would lead to innovation success stories. So, investment is to be made in acquiring patents - whether by acquisition or through internal research. There is no denying the fact that patents play an important role. But they do not themselves lead to success. For example, Google paid a staggering $12.5 billion to Motorola Mobility in 2012, primarily to access the patent portfolio, with the hope of building profitable mobile handset business.

Basically, Motorola's treasure-trove of 17,000 patents was the main attraction for Google to succeed in android-based smart-phone business. But as reported by the Financial Times, Google failed to reignite sales for the business, and the division kept losing money to the tune of $645 million in the first none months of 2014. Eventually, Google sold Motorola Mobility to Lenovo at $2.91b only. Often the growth of disruptive technologies also contributes to the erosion of commercial value of patents. For example, despite having huge patent stockpile on film-based imaging business, Kodak suffered bankruptcy due to the growth of digital imaging technology.

Often we think that technology, skill-set and manufacturing capabilities are key areas to focus for to translating intellectual assets into innovations. But, often such correlation is not a sufficient condition. For example, Microsoft bought Nokia to access Nokia's patent portfolio, skilled human resources, manufacturing capability, strong R&D network and distribution system to succeed in smart-phone innovation around Windows Mobile operating system.  Microsoft announced the purchase of Nokia's phone assets in September 2013, reaching a deal in 2014. The total purchase price reached approximately $7.9 billion. As reported by Computerworld, Microsoft wrote off $7.6b in 2015, admitting the failure of the decision to acquire Nokia.

Start-up is another area of competence we should be carefully concerned about. There is no denying the fact that start-ups have been the key to the growth of key technology clusters in the world. Often cited, such clusters include Silicon Valley in California and Route 128 of Boston area. Some of the common start-up facilitations include arranging idea competition, simplifying registration process, providing co-location space, offering management advisory services, and extending risk capital. Irrespective of greatness of ideas, the entry of products, whether goods or services, around these ideas is usually in primitive form. Such primitive products create very little willingness to pay among a small group of customers, ending up in generating loss-making revenue.

To reverse this loss making revenue, entrepreneurs need to keep adding knowledge and technology into these products and processes so that quality keeps rising and costs keep falling. In the absence of this key capability, start-up movement leads to premature death of numerous such firms once the risk capital dries up in providing subsidy. For example, as reported by Hindustan Business line in 2017, 90 per cent start-ups in India failed, according to a study by IBM. IBM in a statement said, "77 per cent of venture capitalists surveyed believe that many Indian start-ups lack pioneering innovation based on new technologies or unique business models. Indian start-ups are prone to emulate already successful global ideas," Therefore, there is no natural correlation between common competencies for facilitating start-ups and wealth creation out of innovation.

Innovation is about taking ideas to a competitive market at profit. Such journey is often associated with uncertainties, which are around multiple dimensions such as evolving technologies, customer preferences, responses to competition, and also public policies. Entrepreneurs need to take a series of rational decisions in the midst of uncertainties to turn faint potential into profitable revenue. Often access to intellectual properties, complementary assets, government incentives, stable political system, rule of law, and skilled human resources are not sufficient to succeed in turning ideas into profitable ventures.

For example, Singapore is favourably rated in terms of major indicators having strong innovation competence base. In the 2017 global innovation index, Singapore occupied 7th position, far ahead of South Korea and Japan. But as reported in TechinAsia, Singapore is yet to produce a truly innovative start-up. It has been reported that many of Singapore's most well-funded start-ups are the localised versions of business models tested and proven on foreign shores. As reported in the Financial Times in 2017, "Singapore is a popular place to launch a tech start-up, but the generosity of government support means many "zombie" businesses struggle for years while employing only a handful of people and earning pitiful sales." According to a research study done by the National University of Singapore's Entrepreneurship centre, half of the 530 surveyed companies had fewer than five employees on an average, and average annual sales of $200,000.

The basic purpose of innovation is to create new wealth by adding knowledge and technology into products and processes while producing them. In a competitive market economy, access to intellectual properties and entrepreneurial initiatives are not sufficient condition to realise this potential of wealth creation. The idea of innovation should lead to the capability of offering better products at lower costs for generating profitable revenues. Commonly referred and related indicators such as patents, publications, start-ups or S&T graduates do not have natural correlation to innovation-led economic growth. Measurement of innovation competence should focus on the country as well as firm-specific track record of underlying factors contributing towards improving products and processes by adding ideas around knowledge and technology.

M. Rokonuzzaman PhD is Academic, Researcher and Activist: Technology, Innovation and Policy.



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