Innovation Means Much More Than Patents That Lead To Commercial Success

I read with interest Peter Marsh's story in yesterday's Financial Times titled “In search of the world's hotbeds of innovation”. It discusses the methodologies used by CHI Research, a New Jersey-based consultancy that for more than 30 years has tracked technological breakthroughs (patents) and recently has correlated them to commercial success. It's latest figures and published findings show that the United States ranks first in innovation with Japan coming in a close second place. Ironically enough, according to its methodology, CHI finds that most Western European companies have fallen in innovation while Taiwan and South Korea have passed Britain, France and Italy.

[…] CHI's techniques are based around counting not just patents but also the value that can be ascribed to them. This vital additional piece of information separates those patents that will lead nowhere from those involving blockbuster discoveries. CHI's work centres on the fact that when the US Patent Office publishes patents, each one includes a list of other patents from which it is derived. These citations set out the “prior art” from which the new discoveries have evolved.

What's interesting about the findings is that countries like Taiwan and South Korea have typically been accused of either bootlegging technology or simply acting as a low cost production resource for companies in those countries that continue to innovate. But one has to wonder based on CHI's innovation scores, if simply manufacturing and testing breakthroughs have catapulted these countries past our European brethren.

I've long been outspoken about the need for companies to innovate. Not only in technology, but in areas that are less quantifiable than via “patent tracking” including customer service, distribution, marketing and promotion. To innovate in these areas a company must take risks. Too often fantastic products or even art, gets swept under the carpet with barely a chance of success because companies are afraid to put muscle behind a product that might be innovative – yet it also might “not be ready for prime time.”

To be sure, companies must be fiscally responsible but when it falls victim to self-induced analysis paralysis. And while CHI's methodology tries to correlate patent activity to fiscal success, it still may miss the boat. Market research, focus groups and test marketing can ultimately spell doom for a great product, movie, music etc.

So I'd like to see an alternative — or at least an addendum — to CHI's innovation index. That is, let's create an innovation index that considers companies that take risks by inventing new categories of products, move in the opposite direction of its competition or simply stepping out and doing something that is not proven. It's no secret that I'm a fan of Apple's products. But rather than just rant and rave like a fanatical evangelists, I applaud Apple for its innovation. And it has failed inasmuch as it has succeeded. There's no question that its G4 Cube product released in 1999 was innovative, unique and solid. But it missed the boat in terms of price and market demand. Indicators may have told Apple that the Cube was a risk. It developed and marketed the Cube anyway. And while its short less than two year lifespan certainly cost Apple, the result is technology that ultimately paved the path for its latest success: the flat panel iMac.

Even a statistical and analytically driven product company like Proctor & Gamble innovates. The Cincinnatti-based consumer giant created a new category of what else? Something that cleans your home — the Swifter. Aimed right at the old stalwart of home cleanliness, the broom, the Swifter became such a success that other companies soon copied P&G. Why? Because P&G proved successful.

I could go on with lists of companies that have stepped out. And while I'm sure many of these companies introduced products that were patent-driven. It's those that embrace innovation that can't be measured that truly are hotbeds of innovation.