How do we measure innovation?

In response to the IEEE’s report on Patent Power, which lists the top companies ranked by number of patents, Ari Shahdadi and Brad Burnham made trenchant comments in email that I thought were worth sharing (with their permission):

Ari wrote:

The main article is sad to read, with choice quotes like this: “Clearly, the global recession seriously hampered innovation in the United States.” If I’d like to do anything, it’s end the use of patenting statistics as a metric for innovative activity, especially by groups like the IEEE.

Brad responded:

Amen – R&D spending is also a bad indicator because so much is wasted in big companies. The methodology should have something to do with end user utility. Facebook has had a bigger impact on more lives than IBM and they don’t spend a fraction of what IBM spends on R&D or on patents.

I totally agree with both Ari and Brad, but just wishing that people would use another metric won’t make it happen. How might we construct a metric that would reflect the transformative power of the web (no patents), Google (nowhere near as many as their innovations), Facebook (ditto), Amazon (ditto, despite the 1-click flap), Craigslist, Wikipedia, not to mention free software such as Linux, Apache, MySQL and friends, as well the upwelling of innovation in media, maker culture, robotics… you name it: all the areas where small companies create new value and don’t have time, money or inclination to divert effort from innovation to patents?

I’ve long been mindful of the power of synthetic indexes. How many people who religiously check the Dow or the Nasdaq know which companies it actually represents?

It seems to me that there ought to be a way to measure the introduction of new products, and rank them by novelty and by widespread acceptance, in some way that reflects a more substantial measure of innovation and its impact on the economy.

I’d love your thoughts about what could go into such a measure.

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