Innovation Myth #1 | More Is Always Better

More is always better, right?

At least that’s been the conventional wisdom with respect to how many companies pursue their innovation agenda. After all, it’s hard to know what will stick, so why not let a thousand flowers bloom? Well, because sometimes it takes too much time to water all of those flowers and to keep them healthy, which saps focus from the few that could grow to become the most hearty and the most beautiful.

Well, that was one of the hypotheses, well, okay, myths, that drove the creation of the methodology to define and benchmark innovation in payments, what we call the Payments Innovation Index. We really wanted to apply analytical and scientific rigor in order to credibly answer the questions that everyone in the industry seeks the answers to: What makes innovation successful? Who is successful? Who is a leader vs. follower? What distinguishes those who lead from those who follow?

So, in an effort to do that for over 100 companies, we tested some well-established hypotheses along the way – with some surprising results.

Like, for instance …

More is always better, especially when it comes to patents.

One of the things that you learn growing up is that more of anything generally yields a better outcome.

The more you give, the more you receive.

The more money you save, the better car (or house, or whatever) you can buy.

The harder you work, the more money you will earn.

If a company keeps increasing earnings, the stock price rises and valuation climbs.

So when it comes to patents, it’s no surprise that it’s practically an arms race, and literally a financial priority, to utilize patents to capture future innovative value among some of the largest tech companies.

But is “more” all that matters? If it’s just the size of the patent portfolio, does that mean that companies should build an arsenal to stay ahead? Are the most innovative players in payments the ones with the most patents?

The easiest thing to do would be to say “yes” and merely look at the size of everyone’s patent arsenal. But turns out that there are some reasons not to do that. Measuring number of patents alone can be deceiving. Patents have to be valuable to generate real worth.

What we have discovered during our work is that there are two components to innovation – having a culture, which continually supports the process and mindset of creating and developing “patentable” products. But, more important, these patents must create competitive value. Filing them and then letting them sit on a shelf is sort of moot. That means innovators must consider some additional concepts.

Like taking into consideration the quality of a patent and its likely value for the business.

Some patents aren’t worth enough to get you a ride on the New York City subway while others are so important that they’re the foundation for a whole company. Quality, not quantity, matters in this game.

One of our partners in this process, PatentSight, have developed a rigorous methodology to measure just how valuable patents are and have worked with us to apply and adapt their methodology to payments.

One component of this methodology is to determine the frequency of citations by other patents. Patents of particular significance for technical development will have subsequent patents build upon them and are frequently cited within other patent works as a result. The greater the usage, the higher the value. But, there’s more. Recency of usage – the more recent and active the usage by others – is also critical because the more recent and more active, the greater the value of the patent.

Patents are also clearly more valuable if they cover a greater market area and are maintained in those markets. Depth and breadth of patent coverage by geographic area can also be measured and tracked, and increase the ultimate market value of the business, too.

Sounds simple and logical, yes? But, this is a highly simplified overview from the complexity that is running in the background to calculate the actual Patent Value Index®, a PatentSight measure. However, it definitely helps to uncover a level of depth that you wouldn’t otherwise see – or incorporate into any measurement or benchmarking of innovation for any particular company.

And insights that turn conventional wisdom on this topic on its head.

For instance, a company holding a single, highly valuable patent can generate enormous strength and surpass the competition, even if the rival holds 10x the number of patents.

Our analysis has shown, for example, that the financial institution which holds the largest number of patents among all FIs has a competitive score which is 50 percent lower than its greatest rival. The result is that its competitor has a higher net value on that dimension, which is a significant driver in determining their overall innovation score.

The fourth ranked bank comes very close to the third in terms of total patent value, but only has half as many patents. The competitive worth is nearly 50 percent higher.

In the security arena, the top ranked company has more than 50 percent fewer patents than the firm ranked number 2. The leading player holds combined patents with value nearly 3.5 times more than its next largest competitor.

As we sort through the depth of data between patent behemoths and patent “one shot wonders”, it’s interesting to see how some companies have cranked out patents, yet generated only marginal value.

So, perhaps what we learned in our early years wasn’t always the case.

Maybe more, isn’t always the goal? A culture that creates a mindset towards innovation and creative development is positive. But the data seems to indicate that while there is a correlation, more doesn’t always equal the same value.

The final outcome will be interesting to see. You won’t have to wait terribly long – we will be revealing the results at the Innovation Project in March. Learn more about the Payments Innovation Index here.

In the meantime, you can always blame your parents for steering you wrong back in the day.