Measuring innovation is very difficult and there is a classic tradeoff between scope and detail. The broader we want the results to be, the more we lose detail. My main issue with the Global Innovation Index is how much detail we need to lose to obtain a global ranking. In the blogosphere, I’m sure most people will focus on the lists so I’d like to spend a bit of time considering the data.

The general approach with the GII is that innovation has inputs and outputs and we need to get measurements for both sides of the ledger, which is a sound starting point. A summary graphic of the composite measures for inputs and outputs is in the report (see below).

Global Innovation Indedx Measures

As an innovation researcher, I immediately focussed my attention on the output side and the first thing that becomes apparent is that the index is skewed towards scientific outputs as a proxy for innovation. GDP growth is also used as a proxy for knowdledge impact and outward foreign direct investment is used as a proxy for knowledge diffusion. Given that innovation is supposed to be the implementation of a significantly improved good, service or process, I’m left wondering how well this composite really tracks innovation? I won’t say too much more but we know that less than half of innovations in most industries are patented and many firms report innovations without reporting R&D. According to a 2010 OECD report, the number of firms in Australia that report innovation is nearly twice the number of those those that report R&D. Many service industries are not R&D instensive and they don’t produce many patents either, but services and service innovation is a vital part of developed economies.

This is where the scope of the index starts to make things confusing. Using the website, I could find the strengths and weaknesses of Australia but does a lower proportion of exports per GDP unit really mean a nation is less innovative? Do many joint ventures and alliances make a nation more innovative? Remember, that in Australia many of these JVs are associated with the resources sector.

The other thing that strikes me is how much this is biased towards measures that are suitable for developed nations. I’ve just finished supervising a project that used some excellent survey data to look at innovation in Vietnamese firms. Now, these companies do report significantly improved goods and services but very few of these show up with patents or trademarks. Looking at the Global Innovation ranking of 51 tells me nothing about innovation in Vietnam. It does tell me that there aren’t many journal articles and patents coming out of Vietnam and that the economy is growing quickly but that’s not very interesting.

The report attempts to measure another dimension of innovative outputs in the creative industries but this is where measurement gets really tough (and the authors acknowlwedge this). I have no objection to experimenting with measures but the risk in composite indices is that we look at the final number and forget the assumptions that are going on behind the headline figures. Motion pictures as a measure of creative output? Hmmm…. maybe. Newspaper circulation? Good luck with that!

After reading the report, the main question that I had was “what is the question that this report answers?”. Does it really help to have an index of all of these nations? Will it help to encourage innovation? Will it help governments? It’s a bit like Douglas Adams’s answer to life the universe and everything. Following from Tim’s creative use of Orson Welles, here’s the segement from the movie.

Like the Magratheans, in an effort to reduce the complexity and idiosyncracy of innovation to a simple number, we have generated an answer that actually doesn’t get us very far in being more innovative.

Portugal scores 42 on the innovation index. Lucky Portugal!