How can you measure the Knowledge Economy?

Can we use data about research and development spending and patent figures to determine who is leading the Knowledge Economy?

This infographic tests the theory of whether more research and development spending leads to increased intellectual property, as measured by the number of patents per company. One of the angles one could take from the visualised data – and the one we’ll be looking at in this article – is that patents (which have long been seen as an adequate way to measure a company’s stock of ‘intellectual property’ in the loosest term) may not be a particularly good guide to any company’s individual innovation.

Likewise, even if one is to take the annual number of patents as a rough ‘intellectual salary’ in the Knowledge Economy, it would seem that the relationship of this esoteric currency to cold, hard cash is not exactly linear. Let’s dive in and explore these issues a bit more.

Patents may not be a good guide to actual innovation.

We can measure ‘innovation’ by many different yardsticks. It’s typically accepted that the annual received patents – which document innovative products or processes – is one good way to do this. However, this infographic seems to suggest otherwise.

Take, for example, Apple – usually regarded as one of the most innovative companies on earth. And yet their Research and Development spending in 2007 was a little short of a billion dollars – some eight times less than their direct competitor Microsoft. And, likewise, their patent count for the year 2011 is pretty low, too.

And yet the years 2007 through 2010 have seen explosive growth for Apple, and much of this is chalked up to innovation in research and development. In that time, they have redefined the tablet, smartphone, and music markets with the iPad, iPhone, and iTunes Store respectively. That seems like pretty good qualitative evidence for innovation – and yet their patent count remains low.

If we had to guess, we’d say this is down to a disconnection between the academic patent market and the innovation spectrum. Ernst F.W. Alexanderson said “The patent system was established, I believe, to protect the lone inventor. In this it has not succeeded…the patent system protects the institutions which favour invention.” But nonetheless, this kind of invention is often highly abstracted from product purposes. Indeed, many analysts nowadays reckon that the majority of patent submissions are purely spurious, and for the purpose of blocking other companies’ access to certain arcane technologies just in case. So the number of patents – handy though it may be as a rough guide – doesn’t seem to bear much relevance to the actual innovative capacity of any given organisation.

R&D cash doesn’t equate to patents

Despite spending over a billion dollars more on research and development, Microsoft still don’t bring home patents even half as effectively as do IBM. In fact, the final graph on the infographic points out that, though there is a mild correlation between higher R&D spend and the number of patents, the correlation is very weak. Add to that the fact that IBM is a massive outlier, and you might be tempted to suggest that there really isn’t a correlation at all.

For example, HP spent more than $3.6 billion on R&D in 2007, more than twice as much as their competitor Dell’s $1.5 billion investment. HP seems to be on top from this point of view. On the other hand, Dell’s overall patent count for 2011 is significantly higher than that of HP – arguably translating into more innovative technology and products including everything from laser printers, scanners to exchange servers. With this yardstick, Dell seems to have the upper hand. On the other hand, Dell and HP have been competing on multiple fronts for years and these data points do not portray all angles of the competition.

This is an important consideration for companies who believe that patents are a good measure of innovation, and that higher R&D spends yield higher numbers of patents. Both of these factors just aren’t as simple as all that. While the data precludes an explanation of what precisely and mitigating factors might be, it’s clear from the visualisation that the Knowledge Economy is a little more subtly fickle than we might have believed.