Measuring Innovation: Nesta’s Innovation Index Project Albert Bravo-Biosca Innobasque, May 14th

“What

doesn’t gets measured

doesn’t gets done”

“What

doesn’t gets measured

doesn’t gets done”

Innovation is more than high-tech and R&D

Why was Apple the most valuable company of all time?

Buildings Machines

Design Brand

Software

Business model

Intangible assets

Patents

One thing in common: Intangible assets

But intangible assets are difficult to measure

Accountants are more conservative Firms’ balance sheets don’t include most intangible assets (Apple market value 5x its book value)

National accounts ignore most type of intangibles Official investment statistics mostly about buildings and machines

Stock market prices capture the value of a company’s intangibles… (if you still believe in efficient markets!)

Nesta Innovation Index

• Multi-year research programme to improve the measurement of innovation in the private and public sector

• Measure investment in intangible assets in the UK and estimate its contribution to economic growth

• Use a methodology consistent with the national accounts, with data from:

– Intangible assets survey – Input-output tables – Several ONS surveys

The UK economy∗ is 10 per cent larger counting intangibles

Source: Nesta Innovation Index

R&D is only 13 per cent of intangible investment

Source: Nesta Innovation Index

Investment in intangibles by type, 2009 (£bn)

The UK invests more in intangibles than tangibles

Source: Nesta Innovation Index

£ billion (current prices)

tangibles

Intangibles / IP

Large cross-country differences on intangible investment

Source: OECD

Intangible to tangible investment ratio

1,64 1.60

1,23 1,20

0,89 0,89 0,86 0,84 0,73 0,71

0,65

0,46 0,44 0,40 0,30

0,23

0,0

0,5

1,0

1,5

2,0

Uni

ted

King

dom

Uni

ted

Stat

es

Swed

en

Finl

and

Denm

ark

Fran

ce

Germ

any

Cana

da*

Japa

n*

Port

ugal

*

Aust

ria

Spai

n

Aust

ralia

Czec

h Re

publ

ic

Italy

Slov

ak R

epub

lic

Source: OECD

Intangible to tangible investment ratio

1,64 1.60

1,23 1,20

0,89 0,89 0,86 0,84 0,73 0,71

0,65

0,46 0,44 0,40 0,30

0,23

0,0

0,5

1,0

1,5

2,0

Uni

ted

King

dom

Uni

ted

Stat

es

Swed

en

Finl

and

Denm

ark

Fran

ce

Germ

any

Cana

da*

Japa

n*

Port

ugal

*

Aust

ria

Spai

n

Aust

ralia

Czec

h Re

publ

ic

Italy

Slov

ak R

epub

lic

Innovation Leaders Innovation Followers Moderate Innovators

European Innovation Scoreboard Grade:

Large cross-country differences on intangible investment

There are large differences across sectors

Source: Nesta Innovation Index

Investment in intangibles relative to gross value added in the sector

The relative importance of intangibles also varies

Source: Nesta Innovation Index

Intangible-tangible investment ratio by sector, 2007

Each sector innovates in a different way

Share of intangible investment by sector and type, 2007

Source: Nesta Innovation Index

Innovation support policies are not sector neutral

Source: Nesta Innovation Index

Share of intangible investment by type and sector, 2007

Innovation makes a large contribution to growth

Source: Nesta Innovation Index

Contribution to productivity growth, % 2000 - 2008

0 1 2 3

7%

30%

23%

40%

Intangible investment TFP

Labour quality Capital

investment

2.24

0.90

0.51

0.67

0.16

Total

Total factor productivity (inc. wider benefits of

innovations)

Investment in intangibles

Capital investment

Labour quality