SpaceJunk, Miguel Soares, 2001, 3D animation (Source: Wikimedia Commons)
Ideas for Leaders #512

How Companies Are Trading Innovation Quality for Quantity

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Key Concept

When it comes to innovation, are companies mistaking quantity for quality? New research shows that companies who file for a greater number of patents are also filing for patents that are less valuable. This leads to overestimating one’s research productivity — and undermining future innovation.

Idea Summary

How successful are your innovation efforts? For many companies, proof of groundbreaking innovation comes in the form of patents. The question about research productivity is often answered by how many inventions have emerged from a company’s R&D capabilities, as measured by the number of patents filed.

Quantity, however, does not necessarily mean quality. The true measurement of a company research capability has to include both quantity and quality. More patents of lesser value each is not necessarily more productive than less patents of greater value each. And it is possible that there is a trade-off: companies are going for quick wins with patents of lesser value instead of putting in the time, effort and money to make important research breakthroughs.

The first challenge in determining whether such a trade-off is occurring — whether companies are sacrificing patent quality for quantity — is to measure patent quality. One measure might be the number of citations: the more the research is cited by patent examiners, the greater the value. Another might be renewals of the patent: the more valuable patents are more likely to be renewed for a longer period of time.

Internationally, however, these measures are hard to conciliate since there is an enormous diversity of rules, regulations and practices (for example, citation practices) among different countries.

The most effective measure of patent value is ‘family size’ — which refers to the average number of countries in which patent protection was sought. Research has shown that family size (after controlling for variables such as size of firm and whether the firm is part of a larger group) is directly correlated with both technological and economic value.

The second challenge is to account for a firm’s ‘propensity to patent’. Some companies want to patent everything, often as a defensive measure against competitors. Other companies focus on a small number of priority patents. A greater propensity to patent is going to automatically lower the average quality of patents — there are more patents to bring the curve down. In contrast, a company that focuses only on a very few key patents will boast a higher ‘average’ quality.

In 2013, using survey data from the European Patent Office covering nearly 800 companies that had filed patents with the EPO in 2005, professor Gaétan de Rassenfosse from the University of Melbourne (he has since moved to the Ecole polytechnique fédérale de Lausanne in Switzerland) conducted an econometric analysis comparing patent value to number of patents. The result of his analysis confirms that — controlling for all other variable factors among the firms, including the propensity to patent — a greater number of patents was equated with lower quality. The more a company invented, the less valuable its inventions. 

Business Application

The results of the study have important implications for managers. The first and most obvious is for managers to rethink their measures of innovation or research productivity. Rather than relying on quantity, the quality of inventions must also be taken into account when assessing productivity, despite the difficulty of measuring quality.

The existence of a trade-off also means that managers should be very cautious about setting quantity targets and thereby unwittingly undermining the quality of their research. At stake is not simply the short-term issue of research productivity. The invention process builds on previous inventions, which means that as quality is reduced, the company is laying less groundwork for future high-quality inventions. In short, impressive numbers of patents may in fact be undermining the future innovation capabilities of the firm.

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Authors

Institutions

Source

Idea conceived

  • February 2013

Idea posted

  • May 2015

DOI number

10.13007/512

Subject

Real Time Analytics