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01.11

First Study of Its Kind Examines Innovation by U.S. Businesses

Just how innovative are American companies? Until recently, it was impossible to answer that question quantitatively. But now, for the first time, a new study illustrates the innovation that exists throughout the U.S. economy, how many companies are innovating, and which industries are the most innovative.

The information can be found in the National Science Foundation's 2008 Business R&D and Innovation Survey (BRDIS), preliminary data for which was released in October 2010.

"From the viewpoint of business strategy, innovation is a very important element," says Mark Boroush of the NSF's Research and Development Statistics Program (SRS). "Innovation is a main avenue for creating new opportunities for market share growth and for competing around the globe."

Despite its obvious importance, this study provides the U.S. government's first national estimate U.S. innovation activity. "This is not something we have tried to measure in the U.S. economy is some time," says Boroush. "We believe there is great interest in innovation on the part of government, business leaders and academics, and we're trying to provide data for all of those needs."

The Survey's Foundations

"Europe and Asia have done studies like this since the mid-nineties," says Boroush. The new study uses some of the same conventions as European innovation studies while expanding upon previous SRS and Census Bureau studies that examined research and development.

This first BRDIS study examines innovation activities in manufacturing and non-manufacturing companies in 2006, 2007 and 2008. Focusing on a three-year period allows the study to capture innovations that might take a while to come to fruition. "Innovation is a non-linear phenomenon," says Boroush. "It may cross years as it gets rolled out and tested and noticed by the company."

The population for the survey was all for-profit companies with five or more employees that were active in the U.S. in 2008. Out of a potential sample of more than 1.5 million companies, data for this study was collected from approximately 40,000 companies, which were selected randomly from the total population.

The Results

The survey itself measures two types of innovation: product innovations (defined as one or more new or significantly improved goods or services) and process innovations (one or more new or significantly improved methods for manufacturing, production, logistics, or support activities).

The preliminary data suggests that 9 percent of U.S. for-profit companies were product innovators in the three-year period between 2006 and 2008. At the same time, 9 percent of companies were process innovators.

Broken down by activity, the study found that 22 percent of manufacturing companies introduced product innovations during this period, while 22 percent introduced process innovations. In the non-manufacturing sector, 8 percent of companies introduced product innovations, while 8 percent introduced process innovations.

(Despite the similar-looking numbers, Boroush cautioned not to add the numbers up, as companies could have been both product and process innovators.)

But that's the economy as a whole. The picture changes when you look at the numbers more deeply, and by industry. And it also changes when you consider the economic impact of the manufacturing and non-manufacturing sectors.

Manufacturing vs. Non-Manufacturing

Eight percent of U.S. companies are manufacturers, and although that doesn't sound like much, the smaller number of companies has a very large effect on the economy. This category includes very innovative industries, such as pharmaceuticals (24 percent of which innovated with new products), computer manufacturers (47 percent of which innovated with new products), communications equipment-makers (51 percent innovation), and other electronics makers (35 percent innovation).

Meanwhile, 92 percent of U.S. economies are non-manufacturing. But these include many small service companies, such as retailers, hotels, personal services, finance and real estate. "Innovation may not be an important part of their business strategy," says Boroush.

But even within this non-manufacturing category, there are some innovation giants. Telecommunications service providers and software publishers are both listed as non-manufacturing industries, and their innovation outranks many other fields. Software publishers reported a 58 percent product innovation rate and a 56 percent process innovation rate. Telecoms and Internet companies reported a 15 percent product innovation rate, and a 34 percent process innovation rate.

R&D Does Not (Necessarily) Mean Innovation

"The perception is that technology, of course, is innovative," says Boroush. "In reality, it's important to understand that R&D does not indicate innovation. You don't need to be an R&D company to make innovations to your products or processes." Indeed, as long as a product or process innovation is new to the company using it, it counts as innovation. That innovation could originate anywhere.

According to this study, about three percent of U.S. companies performed and/or funded R&D activities in 2008. SRS found that 66 percent of these R&D-performing companies were product innovators, while 51 percent were process innovators.

The study did find that the companies that spent the most on R&D were, quite naturally, highly innovative. Of the companies that spent more than $100 million annually on R&D, 81 percent reported product innovations, while 71 reported process innovations.

"We'd be shocked if we didn't see a lot of innovation in R&D companies," says Boroush. "We were a little surprised we didn't see more innovation widely based across other sectors."

What's Next?

"It's very hard to attribute the numbers we see in this study to the economy," says Boroush, but that might be easier to do in the future. The BRDIS will now be conducted yearly. This survey rate matches the European surveys, and will allow for a basis of benchmarking the results.  Data for the survey about the 2009 year is already being collected.

"In the future, we are planning to enlarge the questions beyond the basic incidence questions," says Boroush. "We'll ask, was the innovation new to the company, new to your industry, or new to the world?" The survey will also ask what percentage of annual sales was associated with innovation. "This will allow us to begin to get an idea of the economic impact of innovation," he says.

They will also be looking at why some industries — such as financial services or health or services — reported lower levels of innovation than expected. "Was this a case of an unfamiliarity of the companies responding to innovation questions for the first time, or have they been doing the same things for years," asks Boroush. "We're trying to be cautious and not too presumptive. We'll have a better understanding and be able to see trends in a few years."

Until then, some of the information from this first BRDIS is available to academics to examine and study on their own. More will be available when it can be published without privacy issues for the companies who responded. "We're hoping this will all become a cross-sectional database about business innovation, competitiveness and strategy," says Boroush.

The expectation, meanwhile, is that gathering these numbers will help to provide a little-seen picture of American innovation and the economy in general. "Our understanding has lagged behind the Europeans for several years, and now we're part of a global economy, so this data can only help," say s Boroush.

John R. Platt is a freelance writer and frequent contributor to Today's Engineer, Scientific American, Mother Nature Network and other publications.

Comments may be submitted to todaysengineer@ieee.org.