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Inside the Black Box

Innovation is a tough nut to crack because it involves much more than invention (see “Invention Is a Flower, Innovation Is a Weed” by Bob Metcalfe). Truly measuring the process of innovation means going beyond traditional analysis of big inputs such as R&D spending and outputs like patents to shine a light inside the black box of national and corporate competition. It’s a problem that spans everything from investment in basic science to research and development tax credits, education systems, corporate programs, inter-industry dynamics and the entrepreneurial culture, all of which combine to fire the innovation process (see “Four Pillars of Innovation” by Michael Dertouzos).

Since many of these factors include qualitative as well as quantitative attributes, measuring innovation’s inner stuff is enough to give any management guru fits. Indeed, executives have struggled with such issues since science steamrolled into business in the 19th century, primarily in the American and German chemical and electrical industries. What’s new, though, are the intensity and magnitude of current efforts to track innovation.

The dawn of this modern era is sometimes traced to Harvard University economics professor Zvi Griliches’ 1979 paper, “Assessing the contributions of research and development to economic growth.” In it, Griliches proposed a theoretical framework for defining and measuring R&D, identifying and tracking its outputs-and charting their economic impact. Not content with theory, Griliches put his ideas into practice in the form of the Productivity Program at the National Bureau of Economic Research in Cambridge. It took years to build a foundation for deeper studies, notes program member and Harvard Business School professor Josh Lerner. But in the past decade, with the rise of powerful desktop computing systems that crunch hundreds of equations in seconds, he notes, “there’s been a whole flowering of research around these issues.”

The most significant initial finding was a strong link between research and development spending and overall productivity and growth. The connection prevails across every level of analysis: national, industrial and corporate. More recently, as the picture has been refined, much attention has centered on the most verifiable output of R&D, i.e. patents. In particular, researchers have devised ever more sophisticated ways to rank patents and evaluate them. On the level of individual organizations and firms, such measures are being used to pick potential marketplace winners and losers and even identify shifts in strategic focus.

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