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Technology indicators and corporate strategy.


Over the last decade, a system of Technology Indicators for measuring the technological strengths of companies and countries has been developed. These indicators are based on close to one and a half million U.S. patents, and nearly nine million patent citations, and provide comparative measures of the activity, impact, speed, and scientific linkage of the technology for thousands of U.S. and foreign companies.

The applications of the Technology Indicators may be grouped within four levels. At the policy level the indicators relate to companies; at the tactical level they relate to specific technologies and research groups; at the conventional level they are used for assessing individual inventions and inventors.

The key characteristic which differentiates modern Technology Indicators from traditional patent analysis is the fact that these indicators provide multi-dimensional portraits of corporate technology. Traditional patent analysis is more or less uni-dimensional, and tends to just identify technological activity by simply counting and classifying patents.

In contrast, Technology Indicators based on patent citation analysis are on a more advanced order of magnitude, and allow for quantitative, graphic, and highly precise identification of key aspects of a company's technological competitiveness. The reason that Technology Indicators are so crucially important, of course, is that technology is a fundamental driving force in modern industry. Every business day there are at least 5,000 new research papers published and at least 1,000 new patent documents issued throughout the world, and every day five new U.S. patents are issued to Hitachi alone, for example. All of this knowledge is driving the sales, profits, and growth of technology-based companies. Companies with high technological strengths are likely to prosper, while companies with obsolete technology seem destined to decline.

As a final introductory note we do want to state the caveat that these Technology Indicators, as with any other indicators, are not perfect, neither technically nor conceptually, and certainly a company with a strong technological position is not inevitably going to have financial and marketplace success. But it certainly seems clear that a company with a weak and declining technology is much more likely to lose that position than one with growing technological strength and, in fact, strong technology seems to be a necessary condition for prosperity in the technology-rich years to come.

Competitiveness at the Policy Level

In this section of the paper we will use some recently published data to illustrate the rather broad applicability of these indicators, and then provide some specific examples. The first broad example was a map first published in The New York Times Science Times (Tuesday May 28, 1991, p. C-1) under the byline "In the Realm of Technology, Japan Looms Ever Larger." In that map the artist drew each country's size proportional to its technology strength, where technology strength is the product of the number of United States patents invented by inventors in those countries, multiplied by a measure of patent impact, the Current Impact Index.

The basis for this index lies in the history of patent-to patent citation. When a U.S. patent is issued it typically contains five or six "reference cited -- U.S. Patents" which TABULAR DATA OMITTED identify the prior art upon which the new patent builds. Patents that are highly cited in later U.S. patents tend to be those that contain important high-impact discoveries. As a result, weighting a patent count by an appropriate citation ratio rewards a company with important discoveries, and lessens the computed strength of a company whose patents tend to be minor variations of old inventions.

The most important point of the map is that, in terms of the top thousand companies, the technological strength of Japan is larger than that of all Western Europe combined. Furthermore, if such a map were created for electronics alone, the area of Japan's greatest strength in the United States patent system, among the top companies, Japan has exceeded the United States itself in technological strength since 1989.

As a further illustration of how irrelevant traditional economic indicators such as national resources and geographic size have become in assessing a country's technological potential, Taiwan is just about as large as all of Canada, and the Soviet Union is not much larger than Belgium. Technological competitiveness now, and economic competitiveness in the future, are certainly not determined by traditional economic resources, but clearly are going to be much more heavily based on the ability of countries and companies to utilize the much more important resources of scientific and technological knowledge.

Competitiveness at the Strategic Level

At a more specific level the same type of data has been incorporated in the new Business Week Patent Scoreboard rankings, which rank companies based on their technological strength. Figure 1, taken from the August 1992 edition of the Patent Scoreboard, shows the top eight companies ranked by this definition of technological strength. Note that the first four companies, Toshiba, Hitachi, Canon, and Mitsubishi Electric, are all Japanese, whereas the next four are U.S.

Also note that seven of the eight companies have much higher than expected Current Impact Indices--a citation impact ratio based on the previous five year's patents, with an expected value of 1.00. For example, the value of 1.45 indicates that Toshiba's last five years' patents are cited 45 percent more than expected in the U.S. patent system.

Of these eight companies, the only one whose impact index is close to average is General Electric, which is also eighth on that list. If one goes back 10, 15 or 20 years, General Electric was, year after year, the company with the most patents in the U.S. patent system; for whatever reason, GE's drop to eighth represents a major shift in technological position for General Electric, especially when compared to major Japanese companies. The shift of technological position from Europe to Japan shown in the New York Times map is further illustrated in the Patent Scoreboard by the fact that among the top 25 companies there is not one single U.K. company, and only three European companies, Phillips from the Netherlands, and Siemens and Hoechst from Germany.

At the strategic level, one of the most fascinating and useful aspects of patent citation analysis is how it can reveal the structure of the technological relationships among companies: which companies are central to a given technology, and how technology "transfers" from one company-to-company. Because the "references cited U.S. patents" on a patent's front page identify prior art, they reveal not only the technical relationship between the just issued patent and the prior art patent, but also a knowledge link between the technology of the company which owned the prior cited art.

It should be kept in mind that the technology transfer aspect of patent citations reflects, in fact, the fundamental reason for a patent system's existence. A government guarantees a monopoly to the inventor of a patent for a specified period of years, in exchange for making that invention public, so others can build upon it, and so that technology and science can advance. Patent citations are simply a direct indicator of this crucial role of the patent as an active element in the transfer and advance of science and technology.

Figures 2 and 3 illustrate this in a very specific way. In both of those figures each black dot represents a specific patent, and the lines from later years to earlier years represent citations from later patents to the earlier cited patents. In Figure 2 we show, for a set of our client's patents (Company 3), all of the citations from three other companies, Companies 1, 2, and 4. Scrutiny of that figure reveals that there are, in fact, three of our client's patents that are quite highly cited, one, in 1975, one in 1978, and one in 1979. Furthermore, note that there are a large number of citations from Company 2 to both the 1975 patent, and the 1979 patent of our client. That is, Company 2 is using both of these patents as prior art to a large number of their own patents and, in fact, taking the technology in those two patents of our client's and combining them.

Figure 3 shows how important this combination has been. For the exact same patents as shown in Figure 1, Figure 3 graphs the within company citations, that is, the citations from each company's patents to its own earlier patents. Note that Company 3 had no internal citations among the seven patents listed, but that Company 2 has obviously built a dense cluster of highly inter linked patents, all of which cite to one or more of Company 3's patents. In fact, what happened here is Company 2 took two rather separate technologies, separate business groups of Company 3, and built from them a new technology. At the time we presented this information to Company 3 they were totally unaware of this activity of Company 2 which had, at that time, produced no products in this area. Subsequently, we learned that Company 2 had been waiting for the expiration of Company 3's patents to enter the market place with an entirely new successor technology, which later happened.

This same phenomenon, at a somewhat higher level of aggregation is illustrated in Figure 4, which shows company- to company citation linkage in the technology of automotive brakes. In that figure the square brackets represent eight automotive companies, and the heavy arrow shows the company whose patents are cited most heavily by the brake patents of the citing automotive company, other than self-cites. The lighter arrow shows the second most cited company, and the small numbers indicate the number of citations from those five years of each company's brake patents. This type of map can be created within any technology, for any group of companies, and serves to identify and indicate which companies are central, and which companies are peripheral to a given technology.

The most important point of that figure is the central technology of Bosch. The brake patents of six different automotive companies cite the patents of Bosch either first or second. Clearly Bosch plays a central creative role in brake technology. In fact, a general analysis of patents by German companies reveals friar Bosch is one of the few German companies with relatively large numbers of highly cited patents in the U.S. patent system; Bosch has been a major technological innovator over the last few decades.

Sample Indicators

A specific corporate technology indicator which is quite useful is Technology Cycle Time (TCT), which is defined as the median age of the patents cited by a given company's patents. For example, if the median age of the cited prior art is five years old, then we would say the company has a TCT of five years. Technology Cycle Time varies, of course, with each individual technology. In a fast moving area such as electronics, the cycle time may be as fast as three to five years, whereas in some of the very old technologies such as ship and boat building, the cycle time may be in the 15 to 20 year range.

Within any one technology or one industry, however, Technology Cycle Time is very revealing, and Figure 5 shows the overall technology time for five major electronics companies, two Japanese, one American, one European, and one Canadian. In cycle time shorter is better, and the two Japanese companies, Fujitsu and Hitachi, have cycle times which are almost a year and a half shorter than Phillips. This country-by-country TCT relationship seems to hold within almost any technology. Typically, Japanese companies have a year shorter cycle time than European companies. Certainly, this is very much in accord with one's intuitive perception of Japanese companies as having very short product development times, the American companies somewhat longer ones, and the European companies, in general, to be slowest to innovate.

It should be noted that while this is generally true there are exceptions, and these exceptions are interesting. For example, a large European company may be slow in most of its technological areas, but in an area in which it is intensely developing new products, and very aggressively patenting them, the company might have a very short cycle time. This is one of the many citation indicators that can help to pinpoint areas of technical strength and excellence within a company's research portfolio.

One other indicator used in competitor assessment in Science Linkage, the number of times the references on the front page of a U.S. patent cite to scientific papers. Science linkage is very important indicator of whether a company's patents are leading edge and dependent upon information coming directly from contemporary scientific research. This number is virtually zero for patents in mechanical and non-science-related technologies, average at about one per patent in traditionally science-related areas such as chemistry, and peaks overall at about 2.5 science references per patent for the highly science-linked area of drugs and medicine.

What Figure 6 shows is that, within drugs and medicine, some of the very high-tech organizations are extremely science-linked. The average Genetech patent, for example, has more than 20 science references, those of the Genetics Institute 15, and those of a number of universities and other companies 10 or more, compared with only 2.5, on average, for the entire drug and medicine category. In fact, in patents in some of the very advanced areas such as genetic engineering, there are two or three times as many references to scientific papers as there are to earlier patents, again indicating that those areas are directly related and linked to modern scientific research.

Individual Productivity

For a final figure we want to switch from these indicators of corporate performance, and of linkage between companies, to what we feel is one of the central and least recognized aspects of technology, the importance of key inventors and researchers. The upper part of Figure 7 shows a well known law from science, that a relatively small number of scientists will publish a large number of papers, and a rather large number of scientists will publish a small number of papers and, in fact, you get from this type of highly skewed distribution something approaching the 80/20 law, that 20 percent of the people will produce 80 percent of the work.

In a number of patent examples we have looked at, exactly the same concentration of productivity holds. In the lower part of the figure we show the patent productivity of a major manufacturer in an area in which they are world renowned. What the figure shows is that Inventor #1, who is the key person, is responsible for 19 of the 51 patents, or almost 40 percent, and that the #2 inventor, his key support, is responsible for another 20 percent of the inventive output. In this case, the originator of the technology, who is now retired, produced some 15 percent of the patents, and the other 40 or so inventors the remainder.

Although we have not yet done an extensive investigation, our impression is that whenever we do an analysis of a small company, or of a specific area in a large company, we will almost always find one or two key inventors whose knowledge and productivity are the crucial driving forces.

The managerial implications of this, of course, are obvious. It says that doubling the staff of a laboratory would have at best a marginal impact on the laboratory's productivity, unless you also doubled the number of really productive individuals in the laboratory. It also argues for a company to explicitly recognize the central role that its key inventors play, and to make sure, above all, in any downsizing or other reorganization that the key people are nurtured and protected, as they personally embody a very large fraction of the R&D productivity of the company. Even today, as it has been for hundreds of years, advances in research are associated with and literally embodied in a few key productive individuals, and are not something that can be turned on or turned off by decree from a distant board of directors.

In summary, these emerging Technology Indicators techniques can greatly enhance strategic analysis. The bibliography will lead the reader to further information about these techniques, and how they may be used to quantitatively reveal many aspects of technological competitiveness, of technological linkage and transfer, and of the direction and productivity of companies and their competitors.


1. "What Patents Tell You About Your Competitor," Francis Narin, Vincent M. Smith, Jr., and Michael B. Albert. Chemtech, 52-59, February 1993.

2. "Technology Indicators in Strategic Planning," Francis Narin, Michael Albert, Vincent Smith. Science and Public Policy, 369-381, December, 1992.

3. "Status Report: Linkage between Technology and Science," Francis Narin and Dominic Olivastro. Research Policy, 21, 3 237-249, June 1992.

4. TECH-LINE |SM~ User's Guide - An Overview of TECH-LINE's Indicators of Corporate Technological Strength. Francis Narin, September, 1991.

5. TECH-LINE |SM~ Source Book - A Guide to TECH-LINE's Indicators of Corporate Technological Strength. Initial Draft. Francis Narin, May 21, 1991.

6. "Technological Indicators for Assesing Global Corporate Performance," Vincent M. Smith, Jr. and Francis Narin, May 3, 1991. For inclusion in the society of Competitor Intelligence Professionals book "Global Perspectives on Competitive Intelligence."

7. "Direct Validation of Citation Counts as Indicators of Industrially Important Patents," Michael B. Albert, Daniel Avery, Paul McAllister, and Francis Narin. Research Policy, 20, 1991, 251-259.

8. "The Growth of Japanese Science and Technology," Francis Narin and J. Davidson Frame. Science, 245, 4918, 600-604, August 11, 1989.

9. "Patent Citation Analysis: New Validation Studies and Linkage Statistics," Francis Narin, Mitchell Rosen and Dominic Olivastro. In "Science Indicators" Their Use In Science Policy and Their Role in Science Studies." A.F.J. Raan, A.J. Nederhof and H.F. Mood (Editors), DSWO Press, The Netherlands, 37-47, November 14-16, 1988.

10. "Technology Indicators Based on Patents and Patent Citations," Francis Narin and Dominic Olivastro. "In Handbook of Quantitative Studies in Science and Technology." A.F.J. van Raan (Editor) Elsevier Science Publishers, Amsterdam, 465-507, 1988.

11. "Patents as Indicators of Corporate Technological Strength," Francis Narin, Elliot Noma and Ross Perry. Research Policy, 16, 143-155, 1987.

12. "Is Technology Becoming Science," Francis Narin and Elliot Noma. Scientometrics, 7, 3, 369-381, 1985.

13. "Technological Performance Assessments Based on Patents and Patent Citations," Francis Narin, Mark P. Carpenter and Patricia Woolf. IEEE Transactions on Engineering Management, EM 31, 4, 172-183, November, 1984.

14. "Validation Study: Patent Citations as Indicators of Science and Foreign Dependence," Mark P. Carpenter and Francis Narin. World Patent Information, 3, 180-185, 1983.

15. "Citation Rates to Technologically Important Patents," Mark P. Carpenter, Francis Narin and Patricia Woolf. World Patent Information, 3, 4, 160-163, 1981.

16. "Linkage between Basic Research literature and Patents," Mark P. Carpenter, Martin Cooper, and Francis Narin. Research Management, 13, 30-35, March, 1980.

Francis Narin is President, CHI Research, Inc., Haddon Heights, N.J. This paper was originally presented at the Conference Board Meeting "Leveraging Technical Competencies," in March 1993.
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Title Annotation:Symposium: Management of Technology
Author:Narin, Francis
Publication:Review of Business
Date:Mar 22, 1993
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