Monday 28 June 2010

The OECD on Innovation: Once Again

Hardly a month goes by without some new pronouncement by a respected body on the subject of innovation. My particular interest is seeing how these efforts view the role of IP within the larger framework of innovation. While it certainly is the case that IP rights are not identical to innovation, there surely is a relationship between them. However, what that relationship is, and how governments may contribute to it, are both questions to which the answers remain elusive.

The latest effort bears the imprimatur of both the OECD (Organization of Economic Co-operation and Development) and The Economist mgazine. In its May 29 issue, under the title "Growth on the Cheap: Promoting Innovation", there is a discussion based on a conference organized by OECD (described in the article as "[t]he rich-country think-tank") on how governments can do a better job "at spurring and measuring innovation." Since I was not at the conference (no surprise there), I rely on the summary set out in the magazine article. Two points caught my eye.
I. "[The OECD] suggests that governments should not merely encourage the supply of innovation (for example, by funding research), but also try to stimulate demand. Economies, after all, benefit not from the invention of new products or services, but form their diffusion. In countries that are good at commercializimg new ideas, such as America and Norway, even newly founded firms coin valuable intellectual property."
The article sets out a table that shows the percentage of "international patents" filed by firms under five years old as a percentage of all patents filed by firms in such country, for the period 2005-2007 . The table ranges from over 20% by Norway and nearly 15% by the U.S. to under 5% by Italy and the Netherlands.

I make two comments here:

a. As for the first point, it has been part of the management/innovation body of knowledge for at least 25 years that the innovator of a technology or product is only infrequently the party that enjoys commercial benefits of the innovation. Succesful commercialization requires a bundle of skills and capacities, such as manufacturing and marketing, that the innovator itself will not often possess. Government policy may affect these capacities as well as provide incentives for the "supply of innovation" itself. If that is what is meant by "diffusion", then there is nothing really new being said here. If "diffusion", however, means something else, then it is a pity that the article does not go to explain this, as well as how governments can facilitate this process.

b. The reference to young firms "coining valuable intellectual property", using patent filings as a proxy, does not seem to follow from the previous assertion about the need to diffuse the benefits of inventions. I had thought that the point of the paragraph is that successful innovation requires more than invention, namely innovative methods for successful commercialization. If so, I don't follow what patent filings by start-up companies (some, if not many, of whose gazes may well be on achieving a quick exit rather than staying in the game for the long haul) has to do with better innovation after the invention has been made.
II. "The OECD encourages governments to rethink their policies in light of globalization and information economy. It notes that "intangibles" such as knowledge networks and open business models now make up much of the value of firms in rich countries and that many companies produce profitable innovations with little or no research in-house. For example, most of the research behind the iPod was done by other firms, but Apple reaped huge profits from its skill in design, systems integration and marketing."
I feel compelled to comment here as well.

a. I am not sure that what is meant is that many companies innovate without carrying out research in-house, thanks to open networks and business models. Indeed, it is odd that Apple, known as a company that resists open development models (except for the app developers for its ITune ecosystem), is brought as an example for the point. I recall a recent Scientific American podcast that discussed the success of Apple (and the iPod in particular) in driving technology in the direction of design and user experience. Nothing in that podcast interview suggested that Apple's skill-set was connected to open networks and business models.

b. The larger issue seems to be the interconnection between and among in-house invention and research (read: patents), in-house skills, open networks and innovation. Maybe the OECD conference addressed this question, but simply failed to include it within the magazine report--or maybe it did not. It would be interesting to know.

It Means Different Things to Different People


Ken Jarboe said...

Neil -- I agree with you but only in part. The idea innovation is more than just patents and "invention" has been around for numerous years. All of us who study innovation understand that commercialization requires a bundle of skills. However, public policy - especially in the US -- is still geared toward the invention and patent part of the model. What are the standard metrics? R&D in (both funds and STEM personnel) and patents out. Part of the value of the OECD work is to remind policymakers of the broader process and help them understand where public policy may be appropriate. That is a message needed in the US -- where government actions toward aiding commercialization are seen by some as "socialism."

On the issue of apple and iPod, don't confuse the open innovation process with open technology platforms. Apple has long built its strategy around closed technology platforms. In the case of the iPod, they have married this to an open innovation process where outsiders are allowed to develop for the proprietary platform. The other part of the OECD point is that Apple heavily utilizes technology developed outside of the company, i.e. while their in-house design studio is legendary they did not invent the MP3 player. While that may not fit the academic definitions of "open innovation," it is an example of how the innovation system has moved away from the "everything in-house" model of the past.

Ken Jarboe
Athena Alliance

Neil Wilkof said...


Thanks so much for your thoughtful comments.

I guess that I was not being clear on Apple maintaining closed technology platforms for its third-party app developers. Thanks for sharpening this point.

The role of government in all of this is a separate matter. But that is a topic for (many) other blog posts.